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Centre for Mathematical Physics and Stochastics
Department of Mathematical Sciences, University of Aarhus

Funded by The Danish National Research Foundation

MPS-RR 2001-7
February 2001

Valuation of Asian Basket Options with Quasi-Monte Carlo Techniques and Singular Value Decomposition


Lars Oswald Dahl, Fred Espen Benth


We propose pricing methods for European-style Asian arithmetic average basket options in a Black-Scholes framework based on a QMC metod. The nature of QMC metods enables us to enchance the accuracy by decomposing the correlation structure of the noise in the problem using singular value decomposition. This leads to optimal utilization of the low discrepancy sequence, and gives several orders of magnitude enchanced performance over conventional QMC and standard MC methods.

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This paper has now been published in Submitted.