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On a Full Stochastic Optimization Approach for European Option Pricing

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Recent Advances in Computational Optimization (WCO 2022)

Part of the book series: Studies in Computational Intelligence ((SCI,volume 1158))

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Abstract

In the contemporary finance the Monte Carlo and quasi-Monte Carlo methods are solid instruments to solve various problems. In the paper the problem of deriving the fair value of European style options is considered. Regarding the option pricing problems, Monte Carlo methods are extremely efficient and useful, especially in higher dimensions. In this paper we show simulation optimization methods based on both low discrepancy sequences and variance reduction methods which essentially improve the accuracy of the standard approaches for European style options.

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Acknowledgements

Slavi Georgiev is supported by the Bulgarian National Science Fund (BNSF) under Project KP-06-M62/1 “Numerical deterministic, stochastic, machine and deep learning methods with applications in computational, quantitative, algorithmic finance, biomathematics, ecology and algebra” from 2022. Venelin Todorov is supported by the BNSF under Projects KP-06-N52/5 “Efficient methods for modeling, optimization and decision making” and KP-06-N62/6 “Machine learning through physics-informed neural networks”. The work is also supported by BNSF under Bilateral Project KP-06-Russia/17 “New Highly Efficient Stochastic Simulation Methods and Applications”.

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Authors and Affiliations

  1. Department of Information Modeling, Institute of Mathematics and Informatics, Bulgarian Academy of Sciences, Acad. Georgi Bonchev Str., Block 8, 1113, Sofia, Bulgaria

    Venelin Todorov & Slavi Georgiev

  2. Department of Parallel Processing, Institute of Information and Communication Technologies, Bulgarian Academy of Sciences, Acad. Georgi Bonchev Str., Block 25A, 1113, Sofia, Bulgaria

    Venelin Todorov

  3. Department of Applied Mathematics and Statistics, Faculty of Natural Sciences and Education, Angel Kanchev University of Ruse, 8 Studentska Str., 7004, Ruse, Bulgaria

    Slavi Georgiev

Authors
  1. Venelin Todorov
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  2. Slavi Georgiev
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Correspondence to Venelin Todorov .

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Editors and Affiliations

  1. Institute of Information and Communication Technologies, Bulgarian Academy of Sciences, Sofia, Bulgaria

    Stefka Fidanova

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Todorov, V., Georgiev, S. (2024). On a Full Stochastic Optimization Approach for European Option Pricing. In: Fidanova, S. (eds) Recent Advances in Computational Optimization. WCO 2022. Studies in Computational Intelligence, vol 1158. Springer, Cham. https://doi.org/10.1007/978-3-031-57320-0_13

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