Multilevel Monte Carlo path simulation.

Working paper

We show that multigrid ideas can be used to reduce the computational complexity of estimating an expected value arising from a stochastic diferential equation using Monte Carlo path simulations. In the simplest case of a Lipschitz payoff and an Euler discretisation, the computational cost to achieve an accuracy of Ο (ε) is reduced from Ο(ε-3) to Ο (ε-2(log ε)2). The analysis is supported by numerical results showing signicant computational savings.

Authors: Giles, M

• Publisher: Oxford-Man Institute of Quantitative Finance
• Series: Working Papers
• Publication date: 2007-01-01
• Language: English