Regression-based complexity reduction of the nested Monte Carlo methods

DOI10.1137/17M114577XMaRDI QIDQ4579837zbMATH OpenFDO

Authors D. Belomestny, Stefan Häfner, Mikhail Urusov

Publication date 10 August 2018

Published in SIAM Journal on Financial Mathematics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1611.06344

zbMATH Keywords

control variatesMonte Carlo methodsBermudan optionsregression methodsnested simulations

Mathematics Subject Classification ID

Monte Carlo methods (65C05) Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60) Stopping times; optimal stopping problems; gambling theory (60G40)

Abstract: In this paper we propose a novel dual regression-based approach for pricing American options. This approach reduces the complexity of the nested Monte Carlo method and has especially simple form for time discretised diffusion processes. We analyse the complexity of the proposed approach both in the case of fixed and increasing number of exercise dates. The method is illustrated by several numerical examples.

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Cites work

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Cited in

(8)

• Pricing complexity options
• Multilevel simulation based policy iteration for optimal stopping -- convergence and complexity
• Truncated control variates for weak approximation schemes
• A general continuous time Markov chain approximation for multi-asset option pricing with systems of correlated diffusions
• Multilevel dual approach for pricing American style derivatives
• A New Approach for American Option Pricing: The Dynamic Chebyshev Method
• Optimal liquidation through a limit order book: a neural network and simulation approach
• Variance reduction for risk measures with importance sampling in nested simulation

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