LSM Algorithm for Pricing American Option Under Heston–Hull–White’s Stochastic Volatility Model

O. Samimi, Z. Mardani, S. Sharafpour and F. Mehrdoust ()
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O. Samimi: University of Guilan
Z. Mardani: University of Guilan
S. Sharafpour: University of Guilan
F. Mehrdoust: University of Guilan

Computational Economics, 2017, vol. 50, issue 2, No 1, 173-187

Abstract: Abstract In this paper, we present American option pricing under Heston–Hull–White’s stochastic volatility and stochastic interest rate model. To do this, we first discretize the stochastic processes with Euler discretization scheme. Then, we price American option by using least-squares Monte Carlo algorithm. We also compare the numerical results of our model with the Heston-CIR model. Finally, numerical results show the efficiency of the proposed algorithm for pricing American option under the Heston–Hull–White model.

Keywords: American option; Heston–Hull–White model; LSM method (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (7)

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DOI: 10.1007/s10614-016-9598-8

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