Efficient Numerical Inversion for Financial Simulations

• Main Authors: Derflinger, Gerhard, Hörmann, Wolfgang, Leydold, Josef, Sak, Halis
• Format: Others
• Language: en
• Published: Department of Statistics and Mathematics, WU Vienna University of Economics and Business 2009
• Subjects: random variate generation / numerical inversion / generalized hyperbolic distribution / non-central chi-square distribution / varying parameter / CIR model
• Online Access: http://epub.wu.ac.at/830/1/document.pdf

Generating samples from generalized hyperbolic distributions and non-central chi-square distributions by inversion has become an important task for the simulation of recent models in finance in the framework of (quasi-) Monte Carlo. However, their distribution functions are quite expensive to evaluate and thus numerical methods like root finding algorithms are extremely slow. In this paper we demonstrate how our new method based on Newton interpolation and Gauss-Lobatto quadrature can be utilized for financial applications. Its fast marginal generation times make it competitive, even for situations where the parameters are not always constant. === Series: Research Report Series / Department of Statistics and Mathematics