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Monte Carlo Bounds for Game Options Including Convertible Bonds

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Author Info

  • Christopher Beveridge

    ()
    (Centre for Actuarial Studies, Department of Economics, University of Melbourne, Victoria 3010, Australia)

  • Mark Joshi

    ()
    (Centre for Actuarial Studies, Department of Economics, University of Melbourne, Victoria 3010, Australia)

Abstract

We introduce two new methods to calculate bounds for zero-sum game options using Monte Carlo simulation. These extend and generalize upper-bound duality results to the case where both parties of a contract have Bermudan optionality. It is shown that the primal-dual simulation method can still be used as a generic way to obtain bounds in the extended framework, and we apply the new results to the pricing of convertible bonds by simulation. This paper was accepted by Wei Xiong, finance.

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File URL: http://dx.doi.org/10.1287/mnsc.1110.1319
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Bibliographic Info

Article provided by INFORMS in its journal Management Science.

Volume (Year): 57 (2011)
Issue (Month): 5 (May)
Pages: 960-974

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Handle: RePEc:inm:ormnsc:v:57:y:2011:i:5:p:960-974

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Related research

Keywords: finance; asset pricing; games-group decisions; stochastic; probability; stochastic model applications; Monte Carlo simulation; Bermudan optionality;

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