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The Diffusion Bridge Method: Application to Path-Dependent Options (II)

  • 2026
  • OriginalPaper
  • Chapter
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Abstract

This chapter provides a (partial) answer to the following question: can we simulate the continuous—or genuine—Euler scheme? To this end, we first investigate the Brownian bridge and its avatar for diffusion processes which allows to simulate in an exact way some functionals of the genuine Euler scheme involving its maximum or its minimum over a given time interval and provide sharper approximations of functionals involving time integrals. Several first order weak error are stated with precise references. Applications to several families of path-dependent European options (Asian, lookback, barrier) are given, including some variance reduction methods for barrier options.

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Title
The Diffusion Bridge Method: Application to Path-Dependent Options (II)
Author
Gilles Pagès
Copyright Year
2026
DOI
https://doi.org/10.1007/978-3-032-10092-4_8
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