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| Author: | Lindset, S. Lund, A-C. |
| Title: | A technique for reducing discretization bias from Monte Carlo simulations: Option pricing under stochastic interest rates |
| Journal: | European Journal of Finance
2007 : JUL/SEP, VOL. 13:5-6, p. 545-564 |
| Index terms: | international finance options pricing interest rates Monte Carlo technique simulation models |
| Language: | eng |
| Abstract: | This paper aims at showing that a control variate can be applied to reduce the bias stemming from the discretization of the state variable dynamics. This is especially valuable when stochastic interest rate models are discretized, since bias reduction through more grid points is computationally expensive. |
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