A Simple Derivation of and Improvements to Jamshidian's and Rogers' Upper Bound Methods for Bermudan Options

Mark Joshi

Applied Mathematical Finance, 2007, vol. 14, issue 3, 197-205

Abstract: The additive method for upper bounds for Bermudan options is rephrased in terms of buyer's and seller's prices. It is shown how to deduce Jamshidian's upper bound result in a simple fashion from the additive method, including the case of possibly zero final pay-off. Both methods are improved by ruling out exercise at sub-optimal points. It is also shown that it is possible to use sub-Monte Carlo simulations to estimate the value of the hedging portfolio at intermediate points in the Jamshidian method without jeopardizing its status as upper bound.

Keywords: Monte Carlo; Bermudan options; early exercise; upper bounds (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (9)

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DOI: 10.1080/13504860600858071

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