Quasi-Monte Carlo Algorithm for Pricing Options

Jenny X. Li

Abstract


The purpose of this paper is to compare the use of Quasi-Monte Carlo methods, especially the use of recent developed (t; m; s)-nets, versus classical Monte Carlo method for valuing _nancial derivatives. Some research has indicate that under certain condition Quasi-Monte Carlo is superior than the traditional Monte Carlo in terms of rate of convergence and accuracy. In particular, theoretic results hinted that the so-called (t; m; s)-net suppose to be the most powerful one among all the Quasi-Monte Carlo methods when the problem is "smooth". However, the application of (t; m; s)-net was not included in the exist-ing simulation literatures. In this paper I will introduce the algorithms of generate the most common Quasi-Monte Carlo sequences, then im- plement these sequences in several path-dependent options. Our in- vestigation showed that Quasi-Monte Carlo methods outperform the traditional Monte Carlo.

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