In this paper we extend the Stochastic Grid Bundling Method (SGBM), a regress-later Monte Carlo scheme for pricing early-exercise options, with an adjoint method to compute in a highly efficient manner the option sensitivities (the “Greeks”)along the Monte Carlo paths, with reasonable accuracy. The path-wise SGBM Greeks computation is based on the conventional path-wise sensitivity analysis, however, for a regress-later technique. The resulting sensitivities at the end of the monitoring period are implicitly rolled over into the sensitivities of the regression coefficients of the previous monitoring date. For this reason, we name the method Rolling Adjoints, which facilitates Smoking Adjoints [M. Giles, P. Glasserman, Smoking adjoints: fast Monte Carlo Greeks, Risk 19 (1)(2006)88–92]to compute conditional sensitivities along the paths for options with early-exercise features.

In the recent project BENCHOP–the BENCHmarking project in Option Pricing we found that Stochastic and Local Volatility problems were particularly challenging. Here we continue the effort by introducing a set of benchmark problems for this type of problems. Eight different methods targeted for the Stochastic Differential Equation (SDE) formulation and the Partial Differential Equation (PDE) formulation of the problem, as well as Fourier methods making use of the characteristic function, were implemented to solve these problems. Comparisons are made with respect to time to reach a certain error level in the computed solution for the different methods. The implemented Fourier method was superior to all others for the two problems where it was implemented. Generally, methods targeting the PDE formulation of the problem outperformed the methods for the SDE formulation. Among the methods for the PDE formulation the ADI method stood out as the best performing one.

The regulatory credit value adjustment (CVA) for an outstanding over-the-counter (OTC) derivative portfolio is computed based on the portfolio exposure over its lifetime. Usually, the future portfolio exposure is approximated using the Monte Carlo simulation, as the portfolio value can be driven by several market risk-factors. For derivatives, such as Bermudan swaptions, that do not have an analytical approximation for their Mark-to-Market (MtM) value, the standard market practice is to use the regression functions from the least squares Monte Carlo method to approximate their MtM along simulated scenarios. However, such approximations have significant bias and noise, resulting in inaccurate CVA charge. In this paper, we extend the Stochastic Grid Bundling Method (SGBM) for the one-factor Gaussian short rate model, to efficiently and accurately compute Expected Exposure, Potential Future exposure and CVA for Bermudan swaptions. A novel contribution of the paper is that it demonstrates how different measures, for instance spot and terminal measure, can simultaneously be employed in the SGBM framework, to significantly reduce the variance and bias of the solution.

Studies of the performance of the CMS drift tube barrel muon system are described, with results based on data collected during the CMS Cosmic Run at Four Tesla. For most of these data, the solenoidal magnet was operated with a central field of 3.8 T. The analysis of data from 246 out of a total of 250 chambers indicates a very good muon reconstruction capability, with a coordinate resolution for a single hit of about 260 μm, and a nearly 100% efficiency for the drift tube cells. The resolution of the track direction measured in the bending plane is about 1.8 mrad, and the efficiency to reconstruct a segment in a single chamber is higher than 99%. The CMS simulation of cosmic rays reproduces well the performance of the barrel muon detector.

Studies of the performance of the CMS drift tube barrel muon system are described, with results based on data collected during the CMS Cosmic Run at Four Tesla. For most of these data, the solenoidal magnet was operated with a central field of 3.8 T. The analysis of data from 246 out of a total of 250 chambers indicates a very good muon reconstruction capability, with a coordinate resolution for a single hit of about 260 μm, and a nearly 100% efficiency for the drift tube cells. The resolution of the track direction measured in the bending plane is about 1.8 mrad, and the efficiency to reconstruct a segment in a single chamber is higher than 99%. The CMS simulation of cosmic rays reproduces well the performance of the barrel muon detector.