Monte-Carlo-Simulation-for-Stochastic-Jump-Process
Qianfan Wu, Advisor: Prof. Gustavo Schwenkler MS. Mathematical Finance, Boston University
This project explores the Monte Carlo simulation method of the Merton’s Jump & Diffusion stochastic process, in which the security price jumps are modeled by a point process with Poisson intensity. A Euler Discretization Scheme proposed by Giesecke, Teng & Wei (2015) is applied to simulate a single MC path. The computational efficiency of this method, including MSE, bias, and variance is evaluated. We also derived the optimized Euler Bound Parameter ϵ for options with different maturities and strikes.