Explicit Heston Solutions and Stochastic Approximation for Path-dependent Option Pricing.

  title={Explicit Heston Solutions and Stochastic Approximation for Path-dependent Option Pricing.},
  author={Michael A. Kouritzin},
  journal={arXiv: Pricing of Securities},
  • M. Kouritzin
  • Published 5 August 2016
  • Mathematics
  • arXiv: Pricing of Securities
New simulation approaches to evaluating path-dependent options without matrix inversion issues nor Euler bias are evaluated. They employ three main contributions: Stochastic approximation replaces regression in the LSM algorithm; Explicit weak solutions to stochastic differential equations are developed and applied to Heston model simulation; and Importance sampling expands these explicit solutions. The approach complements Heston (1993) and Broadie and Kaya (2006) by handling the case of path… 

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