IMPLEMENTATION OF MONTE CARLO MOMENT MATCHING METHOD FOR PRICING LOOKBACK FLOATING STRIKE OPTION

Dewi, Komang Nonik Afsari
Lesmana, Donny Citra
Budiarti, Retno

BAREKENG: Jurnal Ilmu Matematika dan Terapan
Vol 16 No 4 (2022): BAREKENG: Journal of Mathematics and Its Applications

Monte Carlo method was a numerical method that was popular in finance. This method had disadvantages at convergences, so the moment matching was used to improve the efficiency from Monte Carlo method. The research has discussed about pricing of the lookback floating strike option using the Monte Carlo moment matching method. The monthly stock price of PT TELKOM from 2004 to 2021 that used in this research. The results obtained by adding variance reduction moment matching in Monte Carlo method, which produces a relatively had smaller error when compared to the relative error of the standard Monte Carlo method. The orders of convergence from Monte Carlo method with variance reduction moment matching for call and put option are about 1.1 and 1.4. The conclusion that addition of the moment matching can increase the efficiency of the Monte Carlo method in determining the price of the lookback floating strike option.