Numerical methods for option pricing.

Vidic, Igor (2012). Numerical methods for option pricing.. Thesis (Master thesis), Facultad de Informática (UPM).

Description

Title: Numerical methods for option pricing.
Author/s:
  • Vidic, Igor
Contributor/s:
  • Amillo Gil, June
Item Type: Thesis (Master thesis)
Masters title: Computación Avanzada para Ciencias e Ingenierías
Date: 2012
Subjects:
Faculty: Facultad de Informática (UPM)
Department: Matemática Aplicada
Creative Commons Licenses: Recognition - No derivative works - Non commercial

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Abstract

This thesis aims to introduce some fundamental concepts underlying option valuation theory including implementation of computational tools. In many cases analytical solution for option pricing does not exist, thus the following numerical methods are used: binomial trees, Monte Carlo simulations and finite difference methods. First, an algorithm based on Hull and Wilmott is written for every method. Then these algorithms are improved in different ways. For the binomial tree both speed and memory usage is significantly improved by using only one vector instead of a whole price storing matrix. Computational time in Monte Carlo simulations is reduced by implementing a parallel algorithm (in C) which is capable of improving speed by a factor which equals the number of processors used. Furthermore, MatLab code for Monte Carlo was made faster by vectorizing simulation process. Finally, obtained option values are compared to those obtained with popular finite difference methods, and it is discussed which of the algorithms is more appropriate for which purpose.

More information

Item ID: 21942
DC Identifier: http://oa.upm.es/21942/
OAI Identifier: oai:oa.upm.es:21942
Deposited by: Biblioteca Facultad de Informatica
Deposited on: 12 Dec 2013 09:05
Last Modified: 08 Feb 2016 09:30
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