PT  - JOURNAL ARTICLE
AU  - Sheldon M Ross
AU  - Samim Ghamami
TI  - Efficient Monte Carlo Barrier Option Pricing When the Underlying Security Price Follows a Jump-Diffusion Process
AID  - 10.3905/jod.2010.17.3.045
DP  - 2010 Feb 28
TA  - The Journal of Derivatives
PG  - 45--52
VI  - 17
IP  - 3
4099  - https://pm-research.com/content/17/3/45.short
4100  - https://pm-research.com/content/17/3/45.full
AB  - We present efficient simulation procedures for pricing barrier options when the underlying security price follows a geometric Brownian motion with jumps. Metwally and Atiya [2002] developed a simulation approach for pricing knock-out options in the same setting, but no variance reduction was introduced. We improve upon Metwally and Atiya's method by innovative applications of well-known variance reduction techniques. We also show how to use simulation to price knock-in options. Numerical examples show that our proposed Monte Carlo procedures lead to substantial variance reduction as well as a reduction in computing time.TOPICS: Simulations, options, volatility measures