An application of the put-call-parity to variance reduced Monte-Carlo option pricing

Müller, Armin GND

The standard error of Monte Carlo estimators for derivatives typically decreases at a rate proportional to N^-0.5 where N is the sample size.To reduce empirical variance for estimators of several in-the-money options an application of the putcall- parity is analyzed. Instead of directly simulating a call option, first the corresponding put option is simulated. By employing the put-call-parity the desired call price is calculated. Of course, the approach can also be applied vice versa. By employing this approach for in-the-money options, significant variance reductions are observed.

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Müller, Armin: An application of the put-call-parity to variance reduced Monte-Carlo option pricing. Hagen 2016. FernUniversität in Hagen.

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