Pricing turbo warrants

Persson, JonasUppsala universitet,Avdelningen för teknisk databehandling,Numerisk analys,ndim (författare)

Technical report / Department of Information Technology, Uppsala University,1404-3203 ;2006-015

We numerically price the financial contracts named turbo warrant that were released early in 2005. They have been studied mathematically in [Eriksson05] where explicit pricing formulas for the Geometric Brownian motion were derived. For more general underlying stochastic processes we have no analytical formulas and numerical methods are necessary. In this work two different methods are compared, stochastic pricing using a Monte Carlo method and a deterministic PDE approach using finite differences. The methods are evaluated in terms of numerical efficiency, computation time and accuracy. In the numerical experiments the geometric Brownian motion has been used as underlying stochastic process. Our results show that for low accuracy the methods are almost equal in efficiency but for higher accuracy the finite difference method is much more efficient.

Eriksson, JonatanUppsala universitet,Analys och tillämpad matematik (författare)
Uppsala universitetAvdelningen för teknisk databehandling (creator_code:org_t)

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