easy · Quantitative Finance numerical
In Monte Carlo pricing, the antithetic variates technique reduces variance by pairing a random draw Z with -Z.
Why does this specifically work for most option payoffs?
- Because it ensures the sample mean of the underlying asset is exactly equal to the risk-free rate.
- Because it cancels out the Itô convexity term (1)/(2) σ^2 t.
- Because the two resulting paths are negatively correlated, reducing the variance of their average.
- Because it doubles the number of paths without requiring more random number generation.
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