On the anomaly of ran1() in Monte Carlo pricing of financial derivatives

A. Tajima, S. Ninomiya, S. Tezuka

Research output: Contribution to journalConference article

3 Citations (Scopus)

Abstract

Recently, Paskov reported that, the use of a certain pseudo-random number generator, ran1(), which is given in Numerical Recipes in C First Edition, makes Monte Carlo simulations for pricing financial derivatives converge to wrong values. In this paper, we trace Paskov's experiment, investigate the characteristics and the generation algorithm of the pseudo-random number generator in question, and explain why the wrong convergences occur. We also present a method for avoiding such wrong convergences. A variance reduction procedure is applied together with the method to obtain more precise value, and the effectiveness is examined.

Original languageEnglish
Pages (from-to)360-366
Number of pages7
JournalWinter Simulation Conference Proceedings
DOIs
Publication statusPublished - Jan 1 1996
EventProceedings of the 1996 Winter Simulation Conference, WSC'96 - Coronado, CA, USA
Duration: Dec 8 1996Dec 11 1996

All Science Journal Classification (ASJC) codes

  • Software
  • Modelling and Simulation
  • Safety, Risk, Reliability and Quality
  • Chemical Health and Safety
  • Applied Mathematics

Fingerprint Dive into the research topics of 'On the anomaly of ran1() in Monte Carlo pricing of financial derivatives'. Together they form a unique fingerprint.

  • Cite this