Monte Carlo & Quasi-Monte Carlo approach in option pricing

Monte Carlo simulation has been proven to be a valuable tool for estimating security prices. This study is about comparing Monte Carlo and Quasi-Monte Carlo approach in pricing European call option. Both approaches has an attractive properties of numerical valuation of derivatives, with Quasi-Monte Carlo simulation using low discrepancy sequences for valuing derivatives versus the traditional Monte Carlo method using pseudo-random sequences. The performance of these methods is evaluated based on pricing European call options and by John Birge´s paper in 1995. Option price using Black Scholes method generated by MATLAB will be the benchmark to testify results from both Monte Carlo and Quasi-Monte Carlo approach. At the end of the study, it is proven that Quasi-Monte Carlo approach does give better result than Monte Carlo approach in pricing a call option. It is discovered that Quasi-Monte Carlo using hybrid Halton sequence gave better results compared to Quasi-Monte Carlo because of the random sequence it generated.