Figure 2 exhibits the convergence pace for various maturities as well as the difference between Monte-Carlo or quasi-Monte-Carlo (click here to read our description of quasi-Monte-Carlo.)

Figure 2. Convergence of Monte-Carlo and quasi-Monte-Carlo for bullet bonds

As seen in Figure 2, quasi-Monte-Carlo, which features shock pre-processing, is about twice as accurate as the regular Monte-Carlo (antithetic reflection is included in each model), for the same number of paths. Pricing errors grow almost linearly with maturity beyond 10-yr.

To be continued…