Functional quantization-based stratified sampling

Functional quantization-based stratified sampling is a method for variance reduction proposed by Corlay and Pagès (2015). This method requires the ability to both create functional quantizers and to sample Brownian paths from the strata defined by the quantizers. We show that product quantizers are a suitable approximation of an optimal quantizer for the formation of functional quantizers. The notion of functional stratification is then extended to options written on multiple stocks and American options priced using the Longstaff-Schwartz method. To illustrate the gains in performance we focus on geometric brownian motion (GBM), constant elasticity of variance (CEV) and constant elasticity of variance with stochastic volatility (CEV-SV) models. The pricing algorithm is used to price knock-in, knockout, autocall, call on the max and path dependent call on the max options.

Grantor dc:publisher.institution

Division of Actuarial Science

Year dc:date.issued

2017

Author dc:creator

• Platts, Alexander

Advisor dc:contributor.advisor

• McWalter, Thomas

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/11427/27105

OAI identifier oai:identifier

oai:open.uct.ac.za:11427/27105