Reducing the variance of likelihood ratio greeks in Monte Carlo

Luca Capriotti
2008 2008 Winter Simulation Conference  
We investigate the use of Antithetic Variables, Control Variates and Importance Sampling to reduce the statistical errors of option sensitivities calculated with the Likelihood Ratio Method in Monte Carlo. We show how Antithetic Variables solve the well-known problem of the divergence of the variance of Delta for short maturities and small volatilities. With numerical examples within a Gaussian Copula framework, we show how simple Control Variates and Importance Sampling strategies provide
more » ... tegies provide computational savings up to several orders of magnitude.
doi:10.1109/wsc.2008.4736117 dblp:conf/wsc/Capriotti08 fatcat:6ze5w2omyjajlbvkachrre64tu