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On Path-Dependent Option Pricing for the Heston Model Open Access

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Other title
Subject/Keyword
Option Pricing
Heston Model
American Option
Type of item
Thesis
Degree grantor
University of Alberta
Author or creator
Hu,Huiting
Supervisor and department
Kouritzin, Mike(Mathematical and Statistical Sciences)
Examining committee member and department
Kong, Linglong(Mathematical and Statistical Sciences)
Frei, Christoph(Mathematical and Statistical Sciences)
Jiang, Bei(Mathematical and Statistical Sciences)
Kouritzin, Mike(Mathematical and Statistical Sciences)
Kuttler, Jochen(Mathematical and Statistical Sciences)
Department
Department of Mathematical and Statistical Sciences
Specialization
Statistics
Date accepted
2016-09-23T10:45:05Z
Graduation date
2016-06:Fall 2016
Degree
Master of Science
Degree level
Master's
Abstract
In this thesis, we are focusing on developing an efficient simulation algorithm to price the path-dependent options, which remains a challenging problem in derivatives finance. The Heston model, a widely used stochastic volatility model, will first be introduced. Then, we will discuss and evaluate several methods used in simulating the Heston model, including the Explicit and Weighted Heston simulation algorithm. The research will be extended to the path-dependent option pricing with the simulation results of the Heston model. The least squares Monte Carlo approach and its favorable alternative method, stochastic approximation, will be explained and compared. Finally, we will introduce the branching algorithm to improve the pricing scheme. Numerical results for pricing different kinds of path-dependent options will show the performance of the branching stochastic approximation algorithm is orders of magnitude better in pricing options than the traditional method.
Language
English
DOI
doi:10.7939/R3DB7W159
Rights
This thesis is made available by the University of Alberta Libraries with permission of the copyright owner solely for the purpose of private, scholarly or scientific research. This thesis, or any portion thereof, may not otherwise be copied or reproduced without the written consent of the copyright owner, except to the extent permitted by Canadian copyright law.
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