CodiceQDD 128
TitoloPricing Exotic Derivatives Exploiting Structure
Autore/iSesana, D.; Marazzina, D.; Fusai, G.
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AbstractIn this paper we introduce a new fast and accurate numerical method for pricing exotic derivatives when discrete monitoring is applied. The algorithm is general and is examined in detail with reference to the CEV (Constant Elasticity of Variance) process, for which up to date no efficient procedures are available. The approach exploits the structure of the matrix arising from the numerical quadrature of the pricing backward formulas to devise a convenient factorization that helps greatly in the speed-up of the recursion. The algorithm is applied to different exotic derivatives, such as Asian, barrier, Bermudan, lookback and step options. Extensive numerical experiments confirm the theoretical results.