Optimal Importance Sampling in Securities Pricing

@inproceedings{Su2001OptimalIS,
  title={Optimal Importance Sampling in Securities Pricing},
  author={Yi Su and Michael C. Fu and Robert H. Smith},
  year={2001}
}
To reduce variance in estimating security prices via Monte Carlo simulation, we formulate a parametric minimization problem for the optimal importance sampling measure, which is solved using in nitesimal perturbation analysis (IPA) and stochastic approximation (SA). Compared with existing methods, the IPA estimator we derive is more universally applicable and more computationally e cient. Under suitable conditions, we show that the objective function is a convex function, the IPA estimator is… CONTINUE READING
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