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Minimum variance importance sampling via Population Monte Carlo

Published online by Cambridge University Press:  17 August 2007

R. Douc ,
A. Guillin ,
J.-M. Marin  and
C. P. Robert
R. Douc
Affiliation:
CMAP, École Polytechnique, Palaiseau, France; [email protected]
A. Guillin
Affiliation:
École Centrale Marseille and LATP, France; [email protected]
J.-M. Marin
Affiliation:
Projet , INRIA Futurs, Université Paris-Sud, France; [email protected]
C. P. Robert
Affiliation:
CEREMADE, Université Paris Dauphine and CREST, INSEE, Paris, France; [email protected]
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Abstract

Variance reduction has always been a central issue in Monte Carlo experiments. Population Monte Carlo can be used to this effect, in that a mixture of importance functions, called a D-kernel, can be iterativelyoptimized to achieve the minimum asymptotic variance for a function of interest among all possible mixtures.The implementation of this iterative scheme is illustrated for the computation of the price of a Europeanoption in the Cox-Ingersoll-Ross model. A Central Limit theorem as well as moderate deviations are established for the D-kernel Population Monte Carlo methodology.


Keywords

AdaptivityCox-Ingersoll-Ross modelEuler schemeimportance samplingmathematical financemixturesmoderate deviationspopulation Monte Carlovariance reduction.
Type
Research Article
Information
ESAIM: Probability and Statistics , Volume 11: Special Issue: "Stochastic analysis and mathematical finance" in honor of Nicole El Karoui's 60th birthdaySpecial Issue: "Stochastic analysis and mathematical finance" in honor of Nicole El Karoui's 60th birthday , June 2007 , pp. 427 - 447
Copyright
© EDP Sciences, SMAI, 2007

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