Simulation Based Option Pricing

Denis Belomestny and Grigori N. Milstein
Additional contact information
Denis Belomestny: Weierstrass Institute for Applied Analysis and Stochastics
Grigori N. Milstein: Ural State University, Institute of Physics and Applied Mathematics

Chapter 18 in Applied Quantitative Finance, 2009, pp 363-378 from Springer

Abstract: Here we develop an approach for efficient pricing discrete-time American and Bermudan options which employs the fact that such options are equivalent to the European ones with a consumption, combined with analysis of the market model over a small number of steps ahead. This approach allows constructing both upper and lower bounds for the true price by Monte Carlo simulations. An adaptive choice of local lower bounds and use of the kernel interpolation technique enhance efficiency of the whole procedure, which is supported by numerical experiments.

Keywords: Lower Bound; Option Price; American Option; European Option; Consumption Process (search for similar items in EconPapers)
Date: 2009
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:spr:sprchp:978-3-540-69179-2_18

Ordering information: This item can be ordered from
http://www.springer.com/9783540691792

DOI: 10.1007/978-3-540-69179-2_18

Access Statistics for this chapter

More chapters in Springer Books from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().