Importance Sampling for Rainbow Option Pricing

Stochastic Systems 2026 Open access

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Authors: Leila Setayeshgar, Hui Wang
DOI: 10.1287/stsy.2025.0110
Cited by: 0
References: 14

Abstract

This paper studies the applications of state-dependent importance sampling in pricing exotic rainbow options. We demonstrate that for many rainbow options, efficient dynamic importance sampling schemes can be constructed from subsolutions to appropriate partial differential equations. We also introduce an alternative large deviations scaling, which leads to universal importance sampling for rainbow options.

Fields of Study & Subjects

Stochastic processes and financial applications Markov Chains and Monte Carlo Methods Probability and Risk Models

Publication details

Journal / source
Stochastic Systems
Volume
16
Issue
1
Pages
90–107
Publication date
10 February 2026
Language
EN