Pricing Exotic (Barrier) derivatives with Levy Stochastic Volatility

[YannQ]

Hi everyone,

I am currently trying to price a barrier option with Levy Stochastic Vol through Matlab . But I am having hard times to implement the code for estimating the Stochastic Volatility.

Could you please help in providing an exemple of code.

Thanks again!

 

[Tsotne]

What is the specific problem in MATLAB code? I can probably help in specific issues but don't have an entire code for Levy processes.

 

[YannQ]

Hi Tsotne,

Thank you very much for your answer. I have to solve the following problem: Pricing a barrier, a lookback and a cliquet option

First, I have to simulate the movement of the underlying (stock) with a Levy process (Variance Gamma process or Normal Inverse Gaussian Process...) and then I have to make the volatility stochastic and then integrate the control variates for reducing the standard error of the Monte Carlo simulation

If you can help me with this! Thank you again.

 

[Tsotne]

I understand the problem and can do it in C# or C++ (VBA maybe takes much time though). But as for matlab code, I need to start from scratch, I'm at work now. I'll do it when I get home unless I found some referral to already made code. I'll search for it. When is the deadline?

 

[YannQ]

Thank you again!!! It will save my life! I keep working on it.

If you want, find enclosed the article I base my project on.

Cheers!

 

[YannQ]

by the way, the deadline is the 19th.

 

[Tsotne]

Ok this evening I'll do it.

 

[YannQ]

Thank you for your help!

 

[Tsotne]

You should find this helpful.
http://www.hackchina.com/?lang=en&q=barrier+options

There are some option pricing codes on matlab. If this doesn't help you notify me and I'll do it quick on C++ and then it'll be easier for me to translate into matlab rather than working directly on matlab. That's why my first choice was to search for already existing one. Hpe this helps. If not tell me.

 

[YannQ]

Thank you Tsotne for this link!!

The fact is that I have already done the pricing for a down and out put option with a Monte Carlo simulation (with a Geometric Brownian Motion for the movement of the underlying and a constant volatility) . But I got some problems to simulate the movement of the underlying with a Levy Process (VG and NIG process) and also to simulate the stochastic volatility.

If you have some advice, I would be glad to hear!

Thanks!

 

[Tsotne]

You are welcome. Here is the link of an article which you should find helpful for Levy stable stochastic process. (see the appendix for code) http://people.unipmn.it/scalas/report1_eng.pdf

I'll read the articles about the issue, meanwhile I'll be searching for complete models.

 

[YannQ]

Interesting article but I hardly understand it actually! What I am trying first is to get the underlying Levy stochastic process. Thanks!

 

[Tsotne]

@YannQ

I wrote you a message in private conversation...I'l search for the materials you are posting above at my university library and notify you.

 

[nasnas]

Hi, Yann! So we are working on the same paper. How is the work going? We are stuck!

 

[Tsotne]

BTW, which books are you using for instruction?

 

[jdmc]

Hi I was just wondering if you had completed the code for this project? I am also trying to implement something similar and would greatly appreciate it if you could give me some tips or the code itself. Thanks!