RE: Path valuation issue

Posted by cuchulainn on
URL: http://quantlib.414.s1.nabble.com/Path-valuation-issue-tp2906p2907.html

Hi

I am working on path-dependent options from the viewpoint of PDE/FDM. This offers a number of advantages such as:

 

    Performance (much faster than MC)

    Well-developed theory (people have being using FDM for 200 years)

    Easy to program in C++

 

If I can be of help to the Quantlib you know where to find me.

 

regards

 

Daniel Duffy

 

I include some links to white papers and new book

 

http://www.datasim-component.com/financial.asp

-----Original Message-----
From: [hidden email] [mailto:[hidden email]]On Behalf Of Berardi Luca
Sent: 13 April 2004 11:11
To: Quantlib-Users (E-mail)
Subject: [Quantlib-users] Path valuation issue

Hi there,

I would be interested in using the MonteCarlo framework to valuate path-dependent options. I assume to have a payoff which evaluates to -let's say- 3 fixing dates for expiry 1 year, but I'd like to integrate the stochastic differential equation (SDE, for short) for the underlying using a denser temporal grid, e.g. using 1000 temporal steps.

Hence I generate the path of interest (as a collection of times and drift-diffusion couples)  "integrating" the corresponding DiffusionProcess over the 1000 elements TimeGrid. Then I pass this generated Path as argument of the operator() function in my Pricer class.

As far as I can understand, however, the current Path implementation in QuantLib does not make any difference between fixing dates (i.e. "mandatory times") and times in the Path only used to integrate the SDE. So if I need to evaluate the payoff over my 3 fixing dates I have to "re-integrate" the underlying SDE also in my Pricer::operator( ) function (to get the underlying values corresponding to the 3 fixing dates of interest). This seems to me a bit computationally inefficient.

What I kindly ask is then:
1) am I getting a correct interpretation of the problem?
2) if so, are there any available solutions?
3) and, is this an issue already considered by QuantLib developers?

Thanks in advance.

Luca Berardi

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