Three essays on non-parametric pseudo random disturbance simulations and Monte Carlo approach

• Main Authors: Shu-Shian Lin, 林書賢
• Other Authors: Keng-Hsin Lo
• Format: Others
• Language: en_US
• Published: 2010
• Online Access: http://ndltd.ncl.edu.tw/handle/62954273244762657897

博士 === 國立中央大學 === 企業管理研究所 === 99 === This paper utilized a proposed historical simulation, where the effects of a GARCH (1,1) model on an asset’s price path were considered. The Monte Carlo approach was also used to examine the difference in option payoff values between the simulation approaches and the original path. Furthermore, this paper used the root mean squared pricing error (RMSE) to show which simulation model would have a smaller RMSE by examining the RMSE difference between the approaches. This paper applied the approaches to simulate option payoff values on three security indexes series in China from January 4, 2000 to December 31, 2009, using the common back-testing approach. The results showed that the estimated option values were significantly different from the actual option payoff values for the observed period. Finally, it was found that the RMSE of the adjusted historical simulation was less than that of the other two simulation approaches.