Advanced Search
MyIDEAS: Login to save this paper or follow this series

Faster Comparison of Stopping Times by Nested Conditional Monte Carlo

Contents:

Author Info

  • Fabian Dickmann
  • Nikolaus Schweizer
Registered author(s):

    Abstract

    We show that deliberately introducing a nested simulation stage can lead to significant variance reductions when comparing two stopping times by Monte Carlo. We derive the optimal number of nested simulations and prove that the algorithm is remarkably robust to misspecifications of this number. The method is applied to several problems related to Bermudan/American options. In these applications, our method allows to substantially increase the efficiency of other variance reduction techniques, namely, Quasi-Control Variates and Multilevel Monte Carlo.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://arxiv.org/pdf/1402.0243
    File Function: Latest version
    Download Restriction: no

    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1402.0243.

    as in new window
    Length:
    Date of creation: Feb 2014
    Date of revision:
    Handle: RePEc:arx:papers:1402.0243

    Contact details of provider:
    Web page: http://arxiv.org/

    Related research

    Keywords:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. L. C. G. Rogers, 2002. "Monte Carlo valuation of American options," Mathematical Finance, Wiley Blackwell, Wiley Blackwell, vol. 12(3), pages 271-286.
    2. Longstaff, Francis A & Schwartz, Eduardo S, 2001. "Valuing American Options by Simulation: A Simple Least-Squares Approach," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 14(1), pages 113-47.
    3. Boyle, Phelim & Broadie, Mark & Glasserman, Paul, 1997. "Monte Carlo methods for security pricing," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 21(8-9), pages 1267-1321, June.
    4. Youyi Feng & Guillermo Gallego, 1995. "Optimal Starting Times for End-of-Season Sales and Optimal Stopping Times for Promotional Fares," Management Science, INFORMS, INFORMS, vol. 41(8), pages 1371-1391, August.
    5. Michael B. Gordy & Sandeep Juneja, 2010. "Nested Simulation in Portfolio Risk Measurement," Management Science, INFORMS, INFORMS, vol. 56(10), pages 1833-1848, October.
    6. Mark Broadie & Yiping Du & Ciamac C. Moallemi, 2011. "Efficient Risk Estimation via Nested Sequential Simulation," Management Science, INFORMS, INFORMS, vol. 57(6), pages 1172-1194, June.
    7. repec:esr:wpaper:rsnote2012/3/1 is not listed on IDEAS
    8. Denis Belomestny, 2009. "Pricing Bermudan options using nonparametric regression: optimal rates of convergence for lower estimates," Papers 0907.5599, arXiv.org.
    9. Leif Andersen & Mark Broadie, 2004. "Primal-Dual Simulation Algorithm for Pricing Multidimensional American Options," Management Science, INFORMS, INFORMS, vol. 50(9), pages 1222-1234, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:arx:papers:1402.0243. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.