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(Solved): Path-Dependent Option Pricing via Monte Carlo Simulation Consider an economy, with a stock S, that h ...
Path-Dependent Option Pricing via Monte Carlo Simulation Consider an economy, with a stock
S, that has the following parameters:
(S_(0),\sigma ,\delta ,r)=(1,0.20,0,0.02), and over the subsequent two years, a pair of uniform random numbers
U_(1),U_(2)will be simulated three times, with outcomes Simulation 1:
(U_(1),U_(2))=(0.50,0.16), and Simulation 2:
(U_(1),U_(2))=(0.32,0.36), and Simulation 3:
(U_(1),U_(2))=(0.27,0.70), respectively. Consider a geometric average strike Asian call option with time to maturity of 2 years, where we define the payoff at time 2 as
V_(2):=max{S_(2)-(S_(1)S_(2))^((1)/(2)),0}.Estimate the Monte Carlo valuation of this path-dependent call option. (50 pts)
