Upper Bounds for Bermudan Style Derivatives

Kolodko A. and Schoenmakers J.
Additional contact information
Kolodko A.: Weierstrass Institute for Applied Analysis and Stochastics, Mohrenstr. 39, 10117 Berlin and Institute of Computational Mathematics and Mathematical Geophysics, Prosp. Lavrentjeva 6, 630090 Novosibirsk, Russia; E-mail: . Supported by the DFG Research Center “Mathematics for key technologies” (FZT 86) in Berlin. kolodko@wias-berlin.de
Schoenmakers J.: Weierstrass Institute for Applied Analysis and Stochastics, Mohrenstr. 39, 10117 Berlin; E-mail: schoenma@wias-berlin.de

Monte Carlo Methods and Applications, 2004, vol. 10, issue 3-4, 331-343

Abstract: Based on a duality approach for Monte Carlo construction of upper bounds for American/Bermudan derivatives (Rogers, Haugh & Kogan), we present a new algorithm for computing dual upper bounds in a more efficient way. The method is applied to Bermudan swaptions in the context of a LIBOR market model, where the dual upper bound is constructed from the maximum of still alive swaptions. We give a numerical comparison with Andersen's lower bound method.

Keywords: Bermudan options; Monte Carlo; duality approach; LIBOR models (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (12)

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DOI: 10.1515/mcma.2004.10.3-4.331

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