Variance analysis of control variate technique and applications in Asian option ‎pricing‎

Subject Areas : International Journal of Industrial Mathematics

B. Fathi ‎Vajargah‎ ¹ , A. Salimipour‎ ² , S. Salahshour‎ ³

1 - Department of Statistics, Faculty of Mathematical Science, University of Guilan, Rasht, Iran.
2 - Department of Applied Mathematics, Faculty of Mathematical Science, University of Guilan, Rasht, Iran.
3 - Young Researchers and Elite Club, Mobarakeh Branch, Islamic Azad University, Iran.

Received: 2014-10-28 Accepted : 2014-10-28 Published : 2014-01-01

Keywords: Monte Carlo simulation, Arithmetic Asian options, Variance reduction technique, Control variates, Correlation,

Abstract :

This paper presents an analytical view of variance reduction by control variate technique for pricing arithmetic Asian options as a financial derivatives. In this paper, the effect of correlation between two random variables is shown. We propose an efficient method for choose suitable control in pricing arithmetic Asian options based on the control variates (CV). The numerical experiment shows the productivity of the proposed ‎method.‎