Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/258608 
Year of Publication: 
2021
Citation: 
[Journal:] Journal of Risk and Financial Management [ISSN:] 1911-8074 [Volume:] 14 [Issue:] 11 [Article No.:] 504 [Publisher:] MDPI [Place:] Basel [Year:] 2021 [Pages:] 1-21
Publisher: 
MDPI, Basel
Abstract: 
Recently it was shown that the estimated American call prices obtained with regression and simulation based methods can be significantly improved on by using put-call symmetry. This paper extends these results and demonstrates that it is also possible to significantly reduce the variance of the estimated call price by applying variance reduction techniques to corresponding symmetric put options. First, by comparing performance for pairs of call and (symmetric) put options for which the solution coincides, our results show that efficiency gains from variance reduction methods are different for calls and symmetric puts. Second, control variates should always be used and is the most efficient method. Furthermore, since control variates is more effective for puts than calls, and since symmetric pricing already offers some variance reduction, we demonstrate that drastic reductions in the standard deviation of the estimated call price is obtained by combining all three variance reduction techniques in a symmetric pricing approach. This reduces the standard deviation by a factor of over 20 for long maturity call options on highly volatile assets. Finally, we show that our findings are not particular to using in-sample pricing but also hold when using an out-of-sample pricing approach.
Subjects: 
antithetic sampling
control variates
importance sampling
Monte Carlo simulation
put-call symmetry
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.