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Thanks pavansky for sharing. Can you tell me what is the performance and model accuracy trade off between Monte-Carlo option pricing vs. BSM vs. Binomial vs. He

Thanks pavansky for sharing. Can you tell me what is the performance and model accuracy trade off between Monte-Carlo option pricing vs. BSM vs. Binomial vs. Heston. Currently I use BSM; however, live performance is poor in extracting implied volatility from NBBO of option spreads as I use a naive approach to iterate and converge on the IV. I assume that's what people use CUDA and GPU for to calculate the greeks and pricing of the whole US option chain series in realtime. I'm curious if using CUDA or GPU rented from aws would make performance faster, in a) extracting IV from market ticks, b) figuring out break-even and hedging/adjustment points in different complex option spreads, c) calculating expected payoff in term's of Kelly's for a spread or potential adjustment. Gl with your endeavor.

pavanky 13y ago
Heh, I am a HPC programmer, I am not from the financial sector :) If you can give me links or pseudo code for these algorithms, I can look it up (may be even make a simple example and put it on our github page!).
S4M 13y ago
> Can you tell me what is the performance and model accuracy trade off between Monte-Carlo option pricing vs. BSM vs. Binomial vs. Heston. I don't work in finance anymore, but Heston is not a pricing method per say. In the linked article, the OP assumes that the price of a bitcoin follows a lognormal distribution (i.e: dS_t = mudt + sigmadW_t), while Heston assumes a different diffusion process (dS_t = mudt + digma_tdW_t, and d(sigma_t) = kappa(thau - sigma_t)dt+ zetasqrt(sigma_t) dW'_t) [0]. I would say that Monte Carlo is in general slower and less accurate than the other methods you mentionned, but more flexible in the sense that it allows more complicated diffusion models or payoffs (e.g: option on the max or min of a basket of underlyings). [0]: https://en.wikipedia.org/wiki/Heston_model https://en.wikipedia.org/wiki/Heston_model

pavanky 13y ago

Heh, I am a HPC programmer, I am not from the financial sector :) If you can give me links or pseudo code for these algorithms, I can look it up (may be even make a simple example and put it on our github page!).

S4M 13y ago

> Can you tell me what is the performance and model accuracy trade off between Monte-Carlo option pricing vs. BSM vs. Binomial vs. Heston. I don't work in finance anymore, but Heston is not a pricing method per say. In the linked article, the OP assumes that the price of a bitcoin follows a lognormal distribution (i.e: dS_t = mudt + sigmadW_t), while Heston assumes a different diffusion process (dS_t = mudt + digma_tdW_t, and d(sigma_t) = kappa(thau - sigma_t)dt+ zetasqrt(sigma_t) dW'_t) [0]. I would say that Monte Carlo is in general slower and less accurate than the other methods you mentionned, but more flexible in the sense that it allows more complicated diffusion models or payoffs (e.g: option on the max or min of a basket of underlyings). [0]: https://en.wikipedia.org/wiki/Heston_model https://en.wikipedia.org/wiki/Heston_model