Articlebronze1995

Efficient Monte Carlo Simulation of Security Prices

173 citations0/0 files storedThe Annals of Applied Probability

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Stochastic processes and financial applications Numerical methods for differential equations Mathematical Approximation and Integration

Abstract

This paper provides an asymptotically efficient algorithm for the allocation of computing resources to the problem of Monte Carlo integration of continuous-time security prices. The tradeoff between increasing the number of time intervals per unit of time and increasing the number of simulations, given a limited budget of computer time, is resolved for first-order discretization schemes (such as Euler) as well as second- and higher-order schemes (such as those of Milshtein or Talay).

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