Abstract
Recently, Paskov reported that the use of a certain pseudo-random number generator, ran1(), given in Numerical Recipes in C, First Edition makes Monte Carlo simulations for pricing financial deriva-tives converge to wrong values. In this paper, we trace Paskov's experiment, investigate the characteristics and the generation algorithm of the pseudo-random number generator in question, and explain why the wrong convergences occur. We then present a method for avoiding such wrong convergences. A variance reduction procedure is applied, to gether with a method for obtaining more precise values, and its correctness is examined. We also investigate whether statistical tests for pseudo-random numbers can detect the cause of wrong convergences.
Original language | English |
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Pages (from-to) | 396-397 |
Number of pages | 2 |
Journal | Journal of the Operations Research Society of Japan |
Volume | 41 |
Issue number | 3 |
DOIs | |
Publication status | Published - Sept 1998 |
Externally published | Yes |
All Science Journal Classification (ASJC) codes
- Decision Sciences(all)
- Management Science and Operations Research