Monte carlo pathwise sensitivities for barrier options

Thomas Gerstner, Bastian Harrach, Daniel Roth

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

The Monte Carlo pathwise sensitivities approach is well established for smooth payoff functions. In this work, we present a new Monte Carlo algorithm that is able to calculate the pathwise sensitivities for discontinuous payoff functions. Our main tool is to combine the one-step survival idea of Glasserman and Staum with the stable differentiation approach of Alm, Harrach, Harrach and Keller. As an application, we use the derived results for a five-dimensional calibration of a contingent convertible bond, which we model with different types of discretely monitored barrier options with time-dependent barrier levels.

Original languageEnglish
Pages (from-to)75-99
Number of pages25
JournalJournal of Computational Finance
Volume23
Issue number5
DOIs
StatePublished - 2020
Externally publishedYes

Keywords

  • CoCo bond
  • Discretely monitored barrier options
  • Monte Carlo
  • Pathwise sensitivities

Fingerprint

Dive into the research topics of 'Monte carlo pathwise sensitivities for barrier options'. Together they form a unique fingerprint.

Cite this