Exact Simulation of the 3/2 Model

Jan Baldeaux

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arXiv · 1105.3297

Exact Simulation of the 3/2 Model

Jan Baldeaux

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Abstract

This paper discusses the exact simulation of the stock price process underlying the 3/2 model. Using a result derived by Craddock and Lennox using Lie Symmetry Analysis, we adapt the Broadie-Kaya algorithm for the simulation of affine processes to the 3/2 model. We also discuss variance reduction techniques and find that conditional Monte Carlo techniques combined with quasi-Monte Carlo point sets result in significant variance reductions.

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Jan Baldeaux. 2011-05-18. Exact Simulation of the 3/2 Model. https://arxiv.org/abs/1105.3297

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