I try to use Monte-Carlo Simulation to price a 10-year call option. Based on below parameter,
S = 1, X = 1, volatility = 80%, T = 10, risk-free rate = 0.22%
The option value based on Monte-Carlo Simluation (Longstaff and Schwartz regression) is 0.4634.
But using Binomial model, the value is 0.7943, while using Black-Scholes model, the value is 0.7965. Is there any reason of large discrepancy using Monte-Carlo Simulation model.
When I consider to value short-maturity option by consider similar parameter
S = 1, X = 1, volatility = 80%, T = 1, risk-free rate = 0.22%
Option value based on Monte-Carlo Simluation is 0.2938. Based on binomial model, the value is 0.3112 while the value based on Black-Scholes model is 0.3116.
What is the reason of large discrepancy when using Monte-Carlo Simulation to value long-maturity option? Thanks.