The thesis focuses on pricing complex options using Monte Carlo simulations. Due to the versatility of the Monte Carlo method, we are able to evaluate option prices with various underlying asset models: jump diffusion models, illiquidity models, stochastic volatility and so on. Both European options and Bermudan options are studied in this thesis.For the jump diffusion model in Merton (1973), we demonstrate European and Bermudan option pricing by the Monte Carlo scheme and extend this to multiple underlying assets; furthermore, we analyse the effect of stochastic volatility.For the illiquidity model in the spirit of Glover (2008), we model the illiquidity impact on option pricing in the simulation study. The four models considered are: the first order feedback model with constant illiquidity and stochastic illiquidity; the full feedback model with constant illiquidity and stochastic illiquidity. We provide detailed explanations for the present of path failures when simulating the underlying asset price movement and suggest some measures to overcome these difficulties.
| Identifer | oai:union.ndltd.org:bl.uk/oai:ethos.bl.uk:527183 |
| Date | January 2010 |
| Creators | Wang, Dong-Mei |
| Contributors | Duck, Peter |
| Publisher | University of Manchester |
| Source Sets | Ethos UK |
| Detected Language | English |
| Type | Electronic Thesis or Dissertation |
| Source | https://www.research.manchester.ac.uk/portal/en/theses/monte-carlo-simulations-for-complex-option-pricing(a908ec86-2fb2-4d5d-83e5-9bff78033edd).html |
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