Pricing Bermudan Options via Multilevel Approximation Methods
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Computational methods for stochastic equations (aspects of stochastic analysis) (60H35) Monte Carlo methods (65C05) Probabilistic models, generic numerical methods in probability and statistics (65C20) Numerical solutions to stochastic differential and integral equations (65C30) Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60)
Abstract: In this article we propose a novel approach to reduce the computational complexity of various approximation methods for pricing discrete time American options. Given a sequence of continuation values estimates corresponding to different levels of spatial approximation and time discretization, we propose a multi-level low biased estimate for the price of an American option. It turns out that the resulting complexity gain can be rather high and can even reach the order (varepsilon^{-1}) with (varepsilon) denoting the desired precision. The performance of the proposed multilevel algorithm is illustrated by a numerical example of pricing Bermudan max-call options.
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Cites work
- scientific article; zbMATH DE number 1999206 (Why is no real title available?)
- Monte Carlo algorithms for optimal stopping and statistical learning
- Multilevel dual approach for pricing American style derivatives
- Multilevel Monte Carlo Path Simulation
- Number of paths versus number of basis functions in American option pricing
- Pricing American-style securities using simulation
- Pricing Bermudan options by nonparametric regression: optimal rates of convergence for lower estimates
- Quantitative error estimates for a least-squares Monte Carlo algorithm for American option pricing
- Valuation of the early-exercise price for options using simulations and nonparametric regression
- Valuing American options by simulation: a simple least-squares approach
Cited in
(18)- An improved least squares Monte Carlo valuation method based on heteroscedasticity
- Efficient pricing of Bermudan options using recombining quadratures
- Multilevel simulation based policy iteration for optimal stopping -- convergence and complexity
- Multilevel dual approach for pricing American style derivatives
- Smooth upper bounds for the price function of American style options
- Convergence of a least-squares Monte Carlo algorithm for American option pricing with dependent sample data
- Pricing Bermudan options by nonparametric regression: optimal rates of convergence for lower estimates
- Solving high-dimensional optimal stopping problems using deep learning
- Numerical valuation of Bermudan basket options via partial differential equations
- Mixing LSMC and PDE methods to price Bermudan options
- Upper bounds for Bermudan options on Markovian data using nonparametric regression and a reduced number of nested Monte Carlo steps
- Implied stopping rules for American basket options from Markovian projection
- Nearest neighbor based estimation technique for pricing Bermudan options
- A Simple Derivation of and Improvements to Jamshidian's and Rogers' Upper Bound Methods for Bermudan Options
- Pricing Bermudan options using low-discrepancy mesh methods
- Approximate Bermudan option pricing based on the réduite or cubature: soundness and characterisation of perpetual prices as fixed points
- The price of the Bermudan option: A simple, explicit formula
- Pricing High-Dimensional Bermudan Options with Hierarchical Tensor Formats
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