In Kampen et al.(2008), Monte Carlo estimators obtained by the WKB (Wentzel, Brillouin, Kramers) approximation had better results than Monte Carlo estimators obtained by the lognormal approximation for European swaptions and Bermudan swaptions. We compare the WKB estimators with the lognormal estimators and the pathwise derivative estimators for ratchet caplets and sticky caplets with various maturities. The results show that the WKB estimators have similar performance compared with the lognormal estimators and the pathwise derivative estimators for ratchet caplets. However, the WKB estimators show worse performance than both the lognormal estimators and the pathwise derivative estimators for sticky caplets. These results indicate that the WKB estimators would be hard to substitute for the lognormal estimators for various derivatives.
Research Article|
November 30 2011
Monte Carlo Greeks Using the WKB Approximation Open Access
Publisher: Emerald Publishing on behalf of Korea Derivatives Association
Online ISSN: 2713-6647
Print ISSN: 1229-988X
© 2011 Emerald Publishing Limited
2011
This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode
Journal of Derivatives and Quantitative Studies: Seonmul yeon’gu (2011) 19 (4): 389–426.
Citation
Byun SJ, Kim JS (2011), "Monte Carlo Greeks Using the WKB Approximation". Journal of Derivatives and Quantitative Studies: Seonmul yeon’gu, Vol. 19 No. 4 pp. 389–426, doi: https://doi.org/10.1108/JDQS-04-2011-B0003
Download citation file:
