efficient variance reduction, Financial Management

Assume we are in the midst of the financial crisis in October 2008. Your firm is considering the purchase of a 10 year put option on the S&P 500 Index. You are analyzing the pricing of this option and you would like to incorporate dissimilar deterministic assumptions for the volatility, the interest rate and the dividend yield for each future year. Let us use the following notation:

1569_44.png

 

A) Describe how you would use market data to estimate the future interest rates, future Index volatilities and dividend yields. Describe how to use Monte Carlo simulation to estimate the price of this option. Assume the initial index level is S0 and the strike
price is  K. Assume you are writing the instructions for a programmer  who wil implement the program.

B) Explain in detail an efficient variance reduction technique to improve the efficiency of the algorithm.  
 
C) Explain carefully how you could numerically estimate the delta of this put option.

 

Posted Date: 3/16/2013 2:30:59 AM | Location : United States







Related Discussions:- efficient variance reduction, Assignment Help, Ask Question on efficient variance reduction, Get Answer, Expert's Help, efficient variance reduction Discussions

Write discussion on efficient variance reduction
Your posts are moderated
Related Questions
Constructing Index Numbers There are two approaches for constructing an index number namely the aggregates method and average of relatives method. The index constructed in eit

Under what circumstances would market to book value ratios be misleading?  Explain. The Market to Book ratio is helpful, but it is just only a rough approximation of how liquid

Market Value Ratios Price-Earnings Ratio P/E ratio shows how much investors are willing to pay for earnings per share of the company. Market-to-Bo

Q. Show the Objectives of Inventory Management? Objectives of Inventory Management- The objectives of Inventory Management are: To maintain a adequate large size of inventor

What is the Benefits of divestment ¸ Releases cash tied up to finance more promising opportunities. ¸ Reduces diversification and complexity of a group in case of a demerger

Does the expected value of the sales and of the net income of Spanish companies have anything to do with sustainable growth? No. Sustainable growth it is just a number that sho


Briefly describe the major differences between a sole proprietorship and a corporation. Under which form would you choose for a business, and why? Describe the meaning of financi

#questiBabar Corporation''s present capital structure, which is also its target capital structure I, is 40% debt and 60% common equity. Next year''s net income is projected to be R

Question 1: (i) How are education and economic growth connected? (ii) Explain how the export promotion trade strategy may be more growth promoting for developing economies,