PRICING EUROPEAN CALL OPTION USING MONTE CARLO METHOD WITH VARIANCE GAMMA
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Date
2008-05
Authors
ABDUL. RAHMAN, ANISAH
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Abstract
This research presents a brief introduction to the use of simulation in financial
engineering. It focuses on European option pricing. Here, we use Monte Carlo
simulation to generate option price. We study algorithms of gamma process and a
Variance Gamma process defined as a Brownian process. The Variance Gamma
model has analytical fonnula for the values of European calls and puts. These
formulae have to be computed using numerical methods. In general, option valuation
may require the use of numerical methods including PDE methods, lattice methods
and Monte Carlo methods. We investigate the use of Monte Carlo methods in the
Variance Gamma model.
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PRICING EUROPEAN CALL OPTION USING MONTE CARLO METHOD