Efficient simulation for pricing barrier options with two-factor stochastic volatility and stochastic interest rate
type: Item
instance of: scholarly article
title: Efficient simulation for pricing barrier options with two-factor stochastic volatility and stochastic interest rate
zbMATH Open document ID: 1427.91299
DOI: 10.1155/2017/3912036
author: Zhang Sumei
author: Zhao Jieqiong
published in: Mathematical Problems in Engineering
publication date: 2018-11-05T00:00:00Z
review text: Summary: This paper presents an extension of the double Heston stochastic volatility model by combining Hull-White stochastic interest rates. By the change of numeraire and quadratic exponential scheme, this paper develops a new simulation scheme for the extended model. By combining control variates and antithetic variates, this paper provides an efficient Monte Carlo simulation algorithm for pricing barrier options. Based on the differential evolution algorithm the extended model is calibrated to S\&P 500 index options to obtain the model parameter values. Numerical results show that the proposed simulation scheme outperforms the Euler scheme, the proposed simulation algorithm is efficient for pricing barrier options, and the extended model is flexible to fit the implied volatility surface.
Mathematics Subject Classification ID: 91G60
Mathematics Subject Classification ID: 65C05
Mathematics Subject Classification ID: 91B70
Mathematics Subject Classification ID: 91G20
zbMATH DE Number: 6972041
describes a project that uses: AS 241
MaRDI profile type: Publication
full work available at URL: https://doi.org/10.1155/2017/3912036
OpenAlex ID: W2768947326
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description: scientific article; zbMATH DE number 6972041