A review of efficient Multilevel Monte Carlo algorithms for derivative pricing and risk management
In this article, we present a review of the recent developments on the topic of Multilevel Monte Carlo (MLMC) algorithms, in the paradigm of applications in financial engineering. We specifically focus on the recent studies conducted in two subareas, namely, option pricing and financial risk managem...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
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Elsevier
2023-01-01
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| Series: | MethodsX |
| Subjects: | |
| Online Access: | http://www.sciencedirect.com/science/article/pii/S221501612300081X |
| _version_ | 1797796447258673152 |
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| author | Devang Sinha Siddhartha P. Chakrabarty |
| author_facet | Devang Sinha Siddhartha P. Chakrabarty |
| author_sort | Devang Sinha |
| collection | DOAJ |
| description | In this article, we present a review of the recent developments on the topic of Multilevel Monte Carlo (MLMC) algorithms, in the paradigm of applications in financial engineering. We specifically focus on the recent studies conducted in two subareas, namely, option pricing and financial risk management. For the former, the discussion involves incorporation of the importance sampling algorithm, in conjunction with the MLMC estimator, thereby constructing a hybrid algorithms in order to achieve reduction for the overall variance of the estimator. In case of the latter, we discuss the studies carried out in order to construct an efficient algorithm in order to estimate the risk measures of Value-at-Risk (VaR) and Conditional Var (CVaR). In this regard, we briefly discuss the motivation and the construction of an adaptive sampling algorithm with an aim to efficiently estimate the nested expectation, which, in general is computationally expensive. |
| first_indexed | 2024-03-13T03:33:12Z |
| format | Article |
| id | doaj.art-39f049db71064df7927e99d0325facef |
| institution | Directory Open Access Journal |
| issn | 2215-0161 |
| language | English |
| last_indexed | 2024-03-13T03:33:12Z |
| publishDate | 2023-01-01 |
| publisher | Elsevier |
| record_format | Article |
| series | MethodsX |
| spelling | doaj.art-39f049db71064df7927e99d0325facef2023-06-24T05:17:14ZengElsevierMethodsX2215-01612023-01-0110102078A review of efficient Multilevel Monte Carlo algorithms for derivative pricing and risk managementDevang Sinha0Siddhartha P. Chakrabarty1Department of Mathematics, Indian Institute of Technology Guwahati, Guwahati, Assam 781039, IndiaCorresponding author. Tel.: +91-361-2582606; fax:. +91-361-2582649.; Department of Mathematics, Indian Institute of Technology Guwahati, Guwahati, Assam 781039, IndiaIn this article, we present a review of the recent developments on the topic of Multilevel Monte Carlo (MLMC) algorithms, in the paradigm of applications in financial engineering. We specifically focus on the recent studies conducted in two subareas, namely, option pricing and financial risk management. For the former, the discussion involves incorporation of the importance sampling algorithm, in conjunction with the MLMC estimator, thereby constructing a hybrid algorithms in order to achieve reduction for the overall variance of the estimator. In case of the latter, we discuss the studies carried out in order to construct an efficient algorithm in order to estimate the risk measures of Value-at-Risk (VaR) and Conditional Var (CVaR). In this regard, we briefly discuss the motivation and the construction of an adaptive sampling algorithm with an aim to efficiently estimate the nested expectation, which, in general is computationally expensive.http://www.sciencedirect.com/science/article/pii/S221501612300081XImportance Sampling for Option Pricing and Adaptive Sampling in Efficient Risk Estimation |
| spellingShingle | Devang Sinha Siddhartha P. Chakrabarty A review of efficient Multilevel Monte Carlo algorithms for derivative pricing and risk management MethodsX Importance Sampling for Option Pricing and Adaptive Sampling in Efficient Risk Estimation |
| title | A review of efficient Multilevel Monte Carlo algorithms for derivative pricing and risk management |
| title_full | A review of efficient Multilevel Monte Carlo algorithms for derivative pricing and risk management |
| title_fullStr | A review of efficient Multilevel Monte Carlo algorithms for derivative pricing and risk management |
| title_full_unstemmed | A review of efficient Multilevel Monte Carlo algorithms for derivative pricing and risk management |
| title_short | A review of efficient Multilevel Monte Carlo algorithms for derivative pricing and risk management |
| title_sort | review of efficient multilevel monte carlo algorithms for derivative pricing and risk management |
| topic | Importance Sampling for Option Pricing and Adaptive Sampling in Efficient Risk Estimation |
| url | http://www.sciencedirect.com/science/article/pii/S221501612300081X |
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