Lattice Option Pricing By Multidimensional Interpolation
AbstractThis note proposes a method for pricing high-dimensional American options based on modern methods of multidimensional interpolation. The method allows using sparse grids and thus mitigates the curse of dimensionality. A framework of the pricing algorithm and the corresponding interpolation methods are discussed, and a theorem is demonstrated that suggests that the pricing method is less vulnerable to the curse of dimensionality. The method is illustrated by an application to rainbow options and compared to Least Squares Monte Carlo and other benchmarks.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Mathematical Finance.
Volume (Year): 15 (2005)
Issue (Month): 4 ()
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0960-1627
Other versions of this item:
- Vladislav Kargin, 2003. "Lattice Option Pricing By Multidimensional Interpolation," Finance 0309003, EconWPA, revised 29 Oct 2004.
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
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