Abstract
Solution of the system stochastic differential equations in multi dimensional case using Monte Carlo method had many useful features in compare with the other computational methods. One of them is the solution of boundary value problems to be found at just one point, if required (with associated saving in computation), whereas deterministic methods necessarily find the solution at large number of points simultaneously. This property can be particularly useful in problems such option pricing, where the value of an option is required only at the time of striking, and for the state of the market at that time. In this work we consider a European multi-asset options which mathematically described by the system of stochastic differential equations. We will apply Monte Carlo method for the solution of that system which is the price of Multi-asset rainbow options.
Highlights
Monte Carlo simulation is a popular method for pricing financial options and other derivative securities because of the availability of powerful workstations and recent advances in applying the tool
This paper presents examples of multy-asset rainbow options pricing with using Monte Carlo methods
Monte Carlo simulation is attractive relative to other numerical techniques because it is flexible, easy to implement and modify, and the error convergence rate is independent of the dimension of the problem
Summary
Monte Carlo simulation is a popular method for pricing financial options and other derivative securities because of the availability of powerful workstations and recent advances in applying the tool. This paper presents examples of multy-asset rainbow options pricing with using Monte Carlo methods. In effect, this method computes an estimate of a multidimensional integral, the expected value of the discounted payouts over the space of sample paths. Monte Carlo methods are known to have particular additional strengths These include: Algorithmically simplicity and the ability to solve complex realistic problems that include sophisticated geometry of considered domains. (2016) Evaluation the Price of Multi-Asset Rainbow Options Using Monte Carlo Method. Monte Carlo method will be used for the solution to the system of stochastic differential equations which is the price of Multi-asset rainbow options
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