Exact simulation of the 3/2 model

World Scientific Publishing Co
Publication Type:
Journal Article
International Journal of Theoretical and Applied Finance, 2012, 15 (5), pp. 1 - 13
Issue Date:
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This paper discusses the exact simulation of the stock price process underlying the 3/2 model. Using a result derived by Craddock and Lennox using Lie Symmetry Analysis, we adapt the Broadie-Kaya algorithm for the simulation of affine processes to the 3/2 model. We also discuss variance reduction techniques and find that conditional Monte Carlo techniques combined with quasi-Monte Carlo point sets result in significant variance reductions.
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