Problem bank
Problem 216 of 333MediumFinanceP216
How many Monte Carlo paths for a one-cent price?
You price an at-the-money European call (, , , ) by Monte Carlo. A pilot run of 10,000 paths gives a mean discounted payoff of 10.43 and a sample standard deviation of 14.7.
(a) What is the standard error, and what is a 95% confidence interval for the price?
(b) How many paths do you need for the 95% interval to have half-width one cent?
(c) Using the discounted stock price as a control variate, the correlation between the payoff and the control is 0.925. How many paths do you need now?
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