CONDITIONAL MONTE CARLO SCHEME FOR STABLE GREEKS OF WORST-OF AUTOCALLABLE NOTES

It is well known that the application of Monte Carlo method in pricing of products with early termination feature results in a high Monte Carlo error and unstable greeks; see Fries & Joshi (2011). We develop a Monte Carlo scheme that utilizes a special structure of worst-of autocallable notes and produces stable greeks. This scheme clearly demonstrates the variance reduction in Monte Carlo scheme and can be used in pricing of multi-asset worst-of autocallable notes with any number of underlying assets. We suggest an algorithm and analyze its performance for an autocallable note on four assets. The suggested algorithm allows one to calculate stable greeks (delta, gamma, vega and others) and substantially reduce the computational effort to achieve the desired accuracy in comparison to standard Monte Carlo algorithm.