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arXiv · 2111.00348

Large and moderate deviations for importance sampling in the Heston model

Marc Geha·Antoine Jacquier·Zan Zuric
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Abstract

We provide a detailed importance sampling analysis for variance reduction in stochastic volatility models. The optimal change of measure is obtained using a variety of results from large and moderate deviations: small-time, large-time, small-noise. Specialising the results to the Heston model, we derive many closed-form solutions, making the whole approach easy to implement. We support our theoretical results with a detailed numerical analysis of the variance reduction gains.

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Marc Geha, Antoine Jacquier, Zan Zuric. 2021-10-30. Large and moderate deviations for importance sampling in the Heston model. https://arxiv.org/abs/2111.00348

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