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Reiichiro Kawai

An importance sampling method based on the density transformation of Lévy processes

Keywords: CGMY process, Esscher transform, Gamma process, Meixner process, Monte Carlo simulations, series representation, subordination, variance reduction

In this paper, we develop an importance sampling method with the help of flexible control on the Lévy measure in the density transformation. The method has significant efficacy even on evaluating random variables with complex path-dependent structures. Numerical examples are presented to illustrate convergence acceleration through variance reduction with a view towards financial derivatives pricing.

Monte Carlo Methods and Applications, Walter de Gruyter

Print ISSN: 0929-9629
Volume: 12, 04/2006
Pages: 171 - 186

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