A brief note on the soundness of Bermudan option pricing via cubature
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Publication:6475233
arXivmath/0503235MaRDI QIDQ6475233FDOQ6475233
Authors: Frederik S. Herzberg 
Publication date: 12 March 2005
Abstract: The subject of this study is an iterative Bermudan option pricing algorithm based on (high-dimensional) cubature. We show that the sequence of Bermudan prices (as functions of the underlying assets' logarithmic start prices) resulting from the iteration is bounded and increases monotonely to the approximate perpetual Bermudan option price; the convergence is linear in the supremum norm with the discount factor being the convergence factor. Furthermore, we prove a characterisation of this approximated perpetual Bermudan price as the smallest fixed point of the iteration procedure.
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