CPApr 18, 2019
Monte Carlo pathwise sensitivities for barrier optionsThomas Gerstner, Bastian Harrach, Daniel Roth
The Monte Carlo pathwise sensitivities approach is well established for smooth payoff functions. In this work, we present a new Monte Carlo algorithm that is able to calculate the pathwise sensitivities for discontinuous payoff functions. Our main tool is to combine the one-step survival idea of Glasserman and Staum with the stable differentiation approach of Alm, Harrach, Harrach and Keller. As an application we use the derived results for a two-dimensional calibration of a CoCo-Bond, which we model with different types of discretely monitored barrier options.