Measure the market risk of the American basket options based on the Least Square Monte Carlo Simulation Approach
Qiang Li, Xueling Zhu
Available Online November 2016.
- https://doi.org/10.2991/rac-16.2016.81How to use a DOI?
- American basket options;the least Square Mento Carlo simulation;Value at Risk;Latin Hypercubs samping techniques
- This article applies a simple yet powerful LSM approach for approximating the value of American basket options by simulation.The primary objective is to compare basket Index prices derived from different noise processes. As alternatives,the Brownian motion benchmark is compared to noise processes driven by Gaussian and Student's t copulas, and then three distinct regions of the piecewise distribution is estimated with a semi-parametric probability distribution with generalized Pareto tails. Once we have simulated sample paths, options are priced by the least squares regression method of Longstaff & Schwartz. With the result of American basket put options on stock indices, VaR can be measured by the Latin Hypercubs sampling techniques approximation.The result shows that Latin Hypercubs sampling techniques can be applied to China's stock index option risk measurement.
- Open Access
- This is an open access article distributed under the CC BY-NC license.
Cite this article
TY - CONF AU - Qiang Li AU - Xueling Zhu PY - 2016/11 DA - 2016/11 TI - Measure the market risk of the American basket options based on the Least Square Monte Carlo Simulation Approach BT - 7th Annual Meeting of Risk Analysis Council of China Association for Disaster Prevention (RAC-2016) PB - Atlantis Press SP - 507 EP - 512 SN - 1951-6851 UR - https://doi.org/10.2991/rac-16.2016.81 DO - https://doi.org/10.2991/rac-16.2016.81 ID - Li2016/11 ER -