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Optimal quantization for the pricing of swing options

Author

Listed:
  • Olivier Aj Bardou

    (GDF-RDD)

  • Sandrine Bouthemy

    (GDF-RDD)

  • Gilles Pag`es

    (PMA)

Abstract

In this paper, we investigate a numerical algorithm for the pricing of swing options, relying on the so-called optimal quantization method. The numerical procedure is described in details and numerous simulations are provided to assert its efficiency. In particular, we carry out a comparison with the Longstaff-Schwartz algorithm.

Suggested Citation

  • Olivier Aj Bardou & Sandrine Bouthemy & Gilles Pag`es, 2007. "Optimal quantization for the pricing of swing options," Papers 0705.2110, arXiv.org.
    • Handle: RePEc:arx:papers:0705.2110
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    References listed on IDEAS

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    1. Bally, Vlad & Pagès, Gilles, 2003. "Error analysis of the optimal quantization algorithm for obstacle problems," Stochastic Processes and their Applications, Elsevier, vol. 106(1), pages 1-40, July.
    2. Vlad Bally & Gilles Pagès & Jacques Printems, 2005. "A Quantization Tree Method For Pricing And Hedging Multidimensional American Options," Mathematical Finance, Wiley Blackwell, vol. 15(1), pages 119-168, January.
    3. repec:dau:papers:123456789/607 is not listed on IDEAS
    4. Thompson, Andrew C., 1995. "Valuation of Path-Dependent Contingent Claims with Multiple Exercise Decisions over Time: The Case of Take-or-Pay," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(2), pages 271-293, June.
    5. Christophe Barrera-Esteve & Florent Bergeret & Charles Dossal & Emmanuel Gobet & Asma Meziou & Rémi Munos & Damien Reboul-Salze, 2006. "Numerical Methods for the Pricing of Swing Options: A Stochastic Control Approach," Methodology and Computing in Applied Probability, Springer, vol. 8(4), pages 517-540, December.
    6. Barraquand, Jérôme & Martineau, Didier, 1995. "Numerical Valuation of High Dimensional Multivariate American Securities," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(3), pages 383-405, September.
    7. Bernardo A. Huberman & Scott H. Clearwater, 2005. "Swing Options: A Mechanism for Pricing Peak IT Demand," Computing in Economics and Finance 2005 43, Society for Computational Economics.
    8. Helyette Geman, 2005. "Commodities and Commodity Derivatives. Modeling and Pricing for Agriculturals, Metals and Energy," Post-Print halshs-00144182, HAL.
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    Cited by:

    1. Kourouvakalis, Stylianos, 2008. "Méthodes numériques pour la valorisation d'options swings et autres problèmes sur les matières premières," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/116 edited by Geman, Hélyette.
    2. Nikolay Aleksandrov & Raphael Espinoza, 2011. "Optimal Oil Extraction as a Multiple Real Option," OxCarre Working Papers 064, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.

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