Monte Carlo Pricing of a European Barrier Option
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- Опубліковано 2 чер 2024
- In this video we look at pricing Barrier Options using Monte Carlo risk-neutral pricing approach. We show how you can implement the barrier tree model to price an up-and-out put option in Python.
For those who just want to code, please skip ahead to the Python Implementation section. I will take you through two implementations of a slow Python implementation stepping through the monte carlo simulation step by step. The other is a fast implementation using numpy arrays to vectorize these steps , improving overall computation time as N time steps increase.
In this tutorial series we will be breaking down the theory described and published in Steven Shreve’s book’s Stochastic Calculus for Finance I & II. As a guide for implementing these concepts in Python, we will refer to the numerical methods and practices outlined in Les Clewlow & Chris Strickland’s book Implementing Derivatives Models.
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00:00 Intro
00:24 Theory
04:00 Step by Step
07:00 Vectorized
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I really love the content ! you're filling the gaps that my professors left.
Keep up the great work ! greetings from Germany !
You're on a roll lately, I'm having trouble keeping up!
I hope that means you’re enjoying the content
Just discovered your channel, the value you offer is unreal, I'll start my financial engineering major next year and your ability to digest a fairly technical concept and presenting the theory while doing the practical implementation in such a smooth way is wonderful for anyone who wants to get its hands on a technique quickly. Thanks again, I'll be following your work from now
This was very well-explained and helpful. This method should work for lots of crazy types of options. Thanks.
Hi! As you are using the put formula, why is call value instead of put value?
Thanks for the videos. I've always been more interested in the implementation than the theories. Your channel should be a reference to any financial market student.
Any chance you’ll do a local vol model calibration video? From my understanding that’s still used by a lot of banks.
Thanks for another great video. I have now began the necessary math and programming courses to do financial engineering masters. Your channel is a great inspiration!
I found that watching it straight first time and then watching it a second time while recreating the code in Jupyter worked out really well to get a hang of the concept. However, going through the first part (the "slow one"), I keep getting call values around $ 0.00-0.03. I can't find any obvious mistakes in my code, I am wondering if I have nestled the if BARRIER wrongly.
I will have a look at the book recommendations too, especially the latter book where they put the work out in pseudocode looks interesting for these projects. For now though, I have a backlog from your channel to play around with. I enjoy these more calculus-based videos as well, particularly since much quant stuff I google for based on APIs and web scraping tend to get outdated quickly.
Lol I swear I have been learning these topics on my own then after very coincidentally your videos come out. Great stuff.
Your videos are amazing ! Hope one day I'll be able to explain the same way as you !
Would it be possible for you to make some videos on pricing under stochastic volatility models ?
Loving the videos! Would be cool to see a video on variance reduction techniques when pricing deep OTM options
Have you read any decent papers on this? Please share if so
Does it make sense to only use a single volatility for the entire time period though ?
why call value?
The video is cool and useful but the code don't work, the move of price of the option is not coherent with the strike one