Why does it take long to compute the prices for one stock using the BASKETSENSBYLS function in the Financial Derivatives Toolbox 5.6 (R2010b) ?
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I am computing prices for a 10 year period using the functions BASKETSTOCKSPEC/BASKETSENSBYLS, and it is taking a long time(~30 minutes) for the calculation.
Accepted Answer
MathWorks Support Team
on 28 Mar 2011
The BASKETSENSBYLS function in the Financial Derivatives Toolbox computes the
price and sensitivities for basket options using Longstaff-Schwartz model which uses a Monte Carlo simulation.
Currently, the default number of trials for this simulation is 1000. For an American option, the only way to guarantee that we find the exercise date is by testing for each day. The option has a life of 10 years, which translates into 3652 days (2 leap years). For 10 years a simple run will require about 3.65 million price calculations. Additionally, the computation of the sensitivity 'delta' requires two more price calculations causing about 10.956 million price calculations.
It is expected that this large order of calculations can take time.
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