A QUANTIZATION TREE METHOD FOR PRICING AND HEDGING MULTIDIMENSIONAL AMERICAN OPTIONS

Vlad Bally, Gilles Pagès and Jacques Printems

Mathematical Finance, 2005, vol. 15, issue 1, 119-168

Abstract: We present here the quantization method which is well‐adapted for the pricing and hedging of American options on a basket of assets. Its purpose is to compute a large number of conditional expectations by projection of the diffusion on optimal grids designed to minimize the (square mean) projection error (Graf and Luschgy 2000). An algorithm to compute such grids is described. We provide results concerning the orders of the approximation with respect to the regularity of the payoff function and the global size of the grids. Numerical tests are performed in dimensions 2, 4, 5, 6, 10 with American style exchange options. They show that theoretical orders are probably pessimistic.

Date: 2005
References: View complete reference list from CitEc
Citations: View citations in EconPapers (64)

Downloads: (external link)
https://doi.org/10.1111/j.0960-1627.2005.00213.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:mathfi:v:15:y:2005:i:1:p:119-168

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0960-1627

Access Statistics for this article

Mathematical Finance is currently edited by Jerome Detemple

More articles in Mathematical Finance from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().