CONVERGENCE OF A LEAST†SQUARES MONTE CARLO ALGORITHM FOR AMERICAN OPTION PRICING WITH DEPENDENT SAMPLE DATA

Daniel Z. Zanger

Mathematical Finance, 2018, vol. 28, issue 1, 447-479

Abstract: We analyze the convergence of the Longstaff–Schwartz algorithm relying on only a single set of independent Monte Carlo sample paths that is repeatedly reused for all exercise time†steps. We prove new estimates on the stochastic component of the error of this algorithm whenever the approximation architecture is any uniformly bounded set of L2 functions of finite Vapnik–Chervonenkis dimension (VC†dimension), but in particular need not necessarily be either convex or closed. We also establish new overall error estimates, incorporating bounds on the approximation error as well, for certain nonlinear, nonconvex sets of neural networks.

Date: 2018
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