Posted by
Peter Caspers-4 on
May 26, 2015; 3:42pm
URL: http://quantlib.414.s1.nabble.com/Matching-results-between-HW-tree-and-simulation-models-tp16399p16594.html
Hi Goutham,
what I meant is (maybe a bit too trivial): If the engine uses the
T-Forward measure to price a cashflow of 1 paid at T, then the
simulation will return 1 on all paths, the mean will be exactly 1 and
this is finally multiplied by P(0,T) on today's curve to get the NPV,
so yielding an exact result Independent of the number of paths.
So one has to be careful with too simple test cases for convergence
checks of black box libraries. That's all.
best regards
Peter
On 26 May 2015 at 16:41, Gouthaman Balaraman
<
[hidden email]> wrote:
> Peter
>
> Yes, the calibration with the market instruments would dictate the values
> for a, and sigma. The expression gives us an estimate on selecting the
> number of paths needed to obtain convergence in a Monte Carlo simulation (I
> haven't seen any discussed in other references so far).
>
> I would have to do some research on your remark about the MC simulation
> without the risk neutral measure. I would expect the expression for variance
> of the discount factors would be the same in other probability measures as
> well. In which case, I wonder how other implementations get better
> convergence. It would be nice to get some insight into this.
>
> Goutham
>
>
>
>
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