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    HW 10

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    This document discusses using control variates and quasi-Monte Carlo methods to price barrier options. It provides MATLAB code to simulate stock price paths using control variates with ordinary Monte Carlo, and using quasi-Monte Carlo with Halton sequences. The code prices down-and-out put options by simulating underlying asset paths, counting the number that cross the barrier, and calculating the option payoff and price.

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    HW 10

    Uploaded by

    api-516646274
    62 views4 pages
    This document discusses using control variates and quasi-Monte Carlo methods to price barrier options. It provides MATLAB code to simulate stock price paths using control variates with ordinary Monte Carlo, and using quasi-Monte Carlo with Halton sequences. The code prices down-and-out put options by simulating underlying asset paths, counting the number that cross the barrier, and calculating the option payoff and price.

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    This document discusses using control variates and quasi-Monte Carlo methods to price barrier options. It provides MATLAB code to simulate stock price paths using control variates with ordinary Monte Carlo, and using quasi-Monte Carlo with Halton sequences. The code prices down-and-out put options by simulating underlying asset paths, counting the number that cross the barrier, and calculating the option payoff and price.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    62 views4 pages

    HW 10

    Uploaded by

    api-516646274
    This document discusses using control variates and quasi-Monte Carlo methods to price barrier options. It provides MATLAB code to simulate stock price paths using control variates with ordinary Monte Carlo, and using quasi-Monte Carlo with Halton sequences. The code prices down-and-out put options by simulating underlying asset paths, counting the number that cross the barrier, and calculating the option payoff and price.

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     Use control variates to price barrier options

    clear;

    S0=50;

    X=50;

    r=0.1;

    T=2/12;

    sigma=0.4;

    Sb=40;

    Nsteps=60;

    NRepl=19500;

    NPilot=500;

    [P,CI,NCrossed] = DOPutMCCV(S0,X,r,T,sigma,Sb,Nsteps,NRepl,NPilot)

    function [P,CI,NCrossed] = DOPutMCCV(S0,X,r,T,sigma,Sb,Nsteps,NRepl,NPilot)

    nuT=(r-0.5*sigma^2)*T;

    siT=sigma*sqrt(T);

    randn("seed",0)

    StockVals=S0*exp(nuT+siT*randn(NPilot,1));

    OptionVals=exp(-r*T)*max(0,X-StockVals);

    MatCov=cov(StockVals,OptionVals);

    VarY=S0^2*exp(2*r*T)*(exp(T*sigma^2)-1);

    c=-MatCov(1,2)/VarY;

    ExpY=S0*exp(r*T);

    Payoff=zeros(NRepl,1);

    NCrossed=0;

    for i=1:NRepl

    Path=AssetPaths_1(S0,r,sigma,T,Nsteps,1);

    crossed=any(Path<=Sb);

    if crossed==0

    NewOptionVals=exp(-r*T)*max(0,X-Path(Nsteps+1));

    Payoff(i)=NewOptionVals+c*(Path(Nsteps+1)-ExpY);

    else

    Payoff(i)=c*(Path(Nsteps+1)-ExpY);

    NCrossed=NCrossed+1;

    end

    end
    [P,aux,CI]=normfit(Payoff);

    end

    function SPaths=AssetPaths_1(S0,mu,sigma,T,NSteps,NRepl)

    dt = T/NSteps;

    nudt = (mu-0.5*sigma^2)*dt;

    sidt = sigma*sqrt(dt);

    Increments = nudt + sidt*randn(NRepl, NSteps);

    LogPaths = cumsum([log(S0)*ones(NRepl,1) , Increments] , 2);

    SPaths = exp(LogPaths);

    end

     Use Quasi MC to price barrier options

    % Use Quasi MC to price barrier options

    clear;

    S0=50;

    X=50;

    r=0.1;

    T=2/12;

    sigma=0.4;

    Sb=40;

    NSteps=60;

    NRepl=50000;

    Base1=2;

    Base2=7;

    [P,CI,NCrossed] = DOPutQuasiMC(S0,X,r,T,sigma,Sb,NSteps,NRepl,Base1,Base2)

    function [P,CI,NCrossed] = DOPutQuasiMC(S0,X,r,T,sigma,Sb,NSteps,NRepl,Base1,Base2)

    Payoff=zeros(NRepl,1);

    NCrossed=0;

    dt=T/NSteps;

    nuT=(r-0.5*sigma^2)*dt;

    siT=sigma*sqrt(dt);
    H1=GetHalton(ceil(NSteps*NRepl/2),Base1);

    H2=GetHalton(ceil(NSteps*NRepl/2),Base2);

    VLog=sqrt(-2*log(H1));

    Norm1=VLog.*cos(2*pi*H2);

    Norm2=VLog.*sin(2*pi*H2);

    Norm3=[Norm1;Norm2];

    Norm=reshape(Norm3,NSteps,NRepl);

    for i=1:NRepl

    Increments=nuT+siT*Norm(:,i);

    LogPaths=cumsum([log(S0)*ones(1,1),Increments.',2]);

    Path=exp(LogPaths);

    %Path=S0*exp(nuT+siT*Norm(:,i));

    crossed=any(Path<=Sb);

    if crossed==0

    Payoff(i)=max(0,X-Path(NSteps+1));

    else

    Payoff(i)=0;

    NCrossed=NCrossed+1;

    end

    end

    [P,aux,CI]=normfit(exp(-r*T)*Payoff);

    end

    function Seq = GetHalton(HowMany, Base);

    Seq = zeros(HowMany,1);

    NumBits = 1+ceil(log(HowMany)/log(Base));

    VetBase = Base.^(-(1:NumBits));

    WorkVet = zeros(1,NumBits);

    for i=1:HowMany

    % increment last bit and carry over if necessary

    j=1;

    ok = 0;

    while ok == 0

    WorkVet(j) = WorkVet(j)+1;

    if WorkVet(j) < Base

    ok = 1;
    else

    WorkVet(j) = 0;

    j = j+1;

    end

    end

    Seq(i) = dot(WorkVet,VetBase);

    end

    end

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