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Improving the Performance of Low-Discrepancy Sequences: Using Brownian Bridge in Monte Carlo Simulation of Option Prices

Directory : Faculty : Intellectual Contributions

Intellectual Contribution by Alan Jung

Contribution Title

Improving the Performance of Low-Discrepancy Sequences: Using Brownian Bridge in Monte Carlo Simulation of Option Prices

Publication

The Journal of Derivatives

Co-author

Year

1998

Description

This paper investigates the use of a Brownian Bridge diffusion process to improve the performance of low-discrepancy sequences in Monte Carlo valuation of complex derivative contracts. Numerous authors have shown that the performance of low-discrepancy sequences deteriorates as the number of discrete time intervals per price path increases. I show that augmenting low-discrepancy sequences with a Brownian Bridge process substantially improves their performance by reducing the effective dimensionality of the simulation.

Complete Citation

Improving the Performance of Low-Discrepancy Sequences: Using Brownian Bridge in Monte Carlo Simulation of Option Prices, The Journal of Derivatives, Winter 1998, Vol. 6, No. 2.

Website

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