A general dimension reduction technique for derivative pricing

@inproceedings{Imai2006AGD,
  title={A general dimension reduction technique for derivative pricing},
  author={Junichi Imai and Ken Seng Tan},
  year={2006}
}
For a trajectory simulated from s standardized independent normal variates e = (e1 ,...,e s) � , the payoff of a European option can be represented as max[g(e), 0], where the function g(e) is assumed to be differentiable and it relates to the nature of the derivative securities. In this paper, we develop a new simulation technique by introducing an orthogonal class of transformation to e so that the function g is instead generated from g(Ae) ,w hereA is an s-dimensional orthogonal matrix. The… CONTINUE READING

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