A Mixed PDE/Monte Carlo approach as an efficient way to price under high-dimensional systems

Thesis

We propose to price derivatives modelled by multi-dimensional systems of stochastic differential equations using a mixed PDE/Monte Carlo approach. We derive a stochastic PDE where some of the coefficients are conditional on stochastic ancillary factors. The stochastic PDE is solved with either analytical or finite difference methods, where we simulate all the ancillary processes using Monte Carlo. The multilevel technique has also been introduced to further reduce the variance. The combined m...

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Authors: Ang, X

• Publisher: Oxford University;Mathematical Institute
• Publication date: 2013-06-21