Posted by
Klaus Spanderen-2 on
URL: http://quantlib.414.s1.nabble.com/newbie-question-on-using-MC-to-value-autocall-with-asian-option-feature-tp6821p6829.html
Hi
If you are using a Black-Scholes model it's okay to record the path only on
the observationDates. But if you are using e.g. Local Volatility or a
stochastic volatility model then you'll need a finer time grid to avoid
misleading results. These path generators have discretization errors of order
(\delta t) or (\delta t)^2.
regards
Klaus
On Friday 28 January 2011 07:34:00 archlight wrote:
> Yes, it is deemed to exercise if strike event happens. Sorry for confusion.
>
> I pass observedDates K1, K2, K3 into pathpricer and discounted from Ki if
> average(*)>Ki (i=1,2,3)
> and I simulate with dense timegrid with timesteps =1 (does 1 means one
> day?)
>
> 0------------****K1-------------****K2----------------****K3
>
> but I am thinking to pass in as fixingDates so along the path only dates
> relevant will be recorded.
>
> My question is will that affect accuracy or is it totally wrong?
>
> archlight
>
> Klaus Spanderen-2 wrote:
> > Hi
> >
> > the original posting said something about an Bermudan style feature,
> > therefore
> > I though it's an autocallable with Issuer/Inverstor call right. Your are
> > right, if the structure is only an autocallable the simple Monte-Carlo
> > engine
> > is enough.
> >
> > Klaus
> >
> > On Thursday 27 January 2011 12:26:27 Luigi Ballabio wrote:
> >> Do you need Longstaff-Schwartz for an auto-call? As far as I gather
> >> from the original post, there's no optionality (as in "one can choose
> >> whether to call or not".) A simple Monte Carlo should be enough.
> >>
> >> Luigi
> >
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