Computational Finance

Submission link: https://www.dropbox.com/request/n8pbvUgw8BF9DXcfiWw6

 Reference:- Lecture_folder/Exotic options.pdf in Prof. Jaideep’s lecture folder.
 Submit .zip folder containing three .ipynb file with folder name as
sol_yourId.zip .
 Deadline: Till next Thursday.

Q.1 Barrier option:

a. Estimate using Monte-Carlo simulation the value of a down-and-out and
down-and-in barrier option where the current stock price is 50 the strike price is
50, the risk-free rate is 5% p.a., the volatility is 30% p.a. The time to maturity is
one year and the barrier price is set at 45. Compare the sum of the down-and-in
and down-and-in with the Black-Scholes price of the call option with the same
strike price and maturity.
b. Use antithetic variables variance reduction technique and compare the efficiency.
For verification: -
a. The sum of a value of down-and-in and a down-and-out option should approach
the BSM value of European call option(7.11563) as you increase the number of
generations in the Monte Carlo method.
b. For the small number of simulations use of antithetic variables improves
efficiency, but as you increase the number of simulations there is no difference.
Think of reason.

Q.2 Asian Option:

a. Estimate using Monte-Carlo simulation the value of an Asian call option where
the current stock price is 100 the strike price is 100, the risk-free rate is 6% p.a.,
the volatility is 25% p.a. The time to maturity is one year.
b. Use variance reduction technique (control variate technique) and compare the
efficiency.
Q.3 Loop-back Option:

a. Estimate Using Monte-Carlo simulation the Value of Loopback Call Option Where
Current Stock Price is 100, the strike price is 100, the risk-free rate is 6% p.a., the
volatility is 25% p.a. The time to maturity is One year.