The solution to this exercise is discussed in Chapter 31 but it does no harm to address the problem as early as possible in the book. The focus is on extending the design in Figure 14.6 to create a small one-factor Monte Carlo option pricer.
Â Â Â Â Â Â Answer the following questions:
a) Consider the initial case of pricing one-factor call and put option prices. Which new systems and classes need to be added to the framework? A requirement is that the framework should compute option price and the standard error.
b) The mediator class needs to be extended because in its current form it computes a single path only. Using the Monte Carlo method entails that we create a large number of paths and that we use well-known averaging and discounting algorithms.
c) Test the code from parts a) and b) for call and put options and compare exact and approximate solutions with each other.
d) Extend the framework so that it can be configured to simultaneously price several options for the same path information.