Pricing Bermudan options by nonparametric regression: optimal rates of convergence for lower estimates
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Publication:484205
DOI10.1007/S00780-010-0132-XzbMATH Open1303.91166arXiv0907.5599OpenAlexW2100201113MaRDI QIDQ484205FDOQ484205
Publication date: 18 December 2014
Published in: Finance and Stochastics (Search for Journal in Brave)
Abstract: The problem of pricing Bermudan options using Monte Carlo and a nonparametric regression is considered. We derive optimal non-asymptotic bounds for a lower biased estimate based on the suboptimal stopping rule constructed using some estimates of continuation values. These estimates may be of different nature, they may be local or global, with the only requirement being that the deviations of these estimates from the true continuation values can be uniformly bounded in probability. As an illustration, we discuss a class of local polynomial estimates which, under some regularity conditions, yield continuation values estimates possessing this property.
Full work available at URL: https://arxiv.org/abs/0907.5599
Nonparametric regression and quantile regression (62G08) 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)
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