Investment certificates pricing using a Quasi-Monte Carlo framework: Case-studies based on the Italian market

Abstract

The Monte Carlo method, thanks to its flexibility in designing even extremely complex payoffs, is assuming an increasingly important role in quantitative analysis. Its main limitation is the high computational cost linked to its modest speed of convergence to the fair value of the product. One of the best-known statistical techniques is to replace the random number generator with “low discrepancy” deterministic numerical sequences, producing a Quasi-Monte Carlo. Through its implementation for the analysis of three investment certificates featuring different characteristics and different stochastic processes used for the underlying simulation, the study demonstrates the possibility of achieving interesting results in terms of performance even for pricing these structured products ever more popular in the financial industry.