medium · Quantitative Finance numerical
What is a primary disadvantage of using the control variate technique in complex derivative pricing?
- It always increases the total per-simulated-path computational cost by a full order of magnitude.
- It cannot be combined with other established variance reduction techniques, such as antithetic sampling.
- It introduces a persistent, non-negligible bias in the estimator whenever the number of simulated paths is small.
- It requires an additional analytic solution for the control variate, which may not exist for all products.
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