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

Pricing High-Dimensional American Options Using Local Consistency Conditions


Author Info

  • Berridge, S.J.
  • Schumacher, J.M.

    (Tilburg University, Center for Economic Research)


We investigate a new method for pricing high-dimensional American options. The method is of finite difference type but is also related to Monte Carlo techniques in that it involves a representative sampling of the underlying variables.An approximating Markov chain is built using this sampling and linear programming is used to satisfy local consistency conditions at each point related to the infinitesimal generator or transition density.The algorithm for constructing the matrix can be parallelised easily; moreover once it has been obtained it can be reused to generate quick solutions for a large class of related problems.We provide pricing results for geometric average options in up to ten dimensions, and compare these with accurate benchmarks.

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:
Our checks indicate that this address may not be valid because: 404 Not Found. If this is indeed the case, please notify (Richard Broekman)
Download Restriction: no

Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2004-19.

as in new window
Date of creation: 2004
Date of revision:
Handle: RePEc:dgr:kubcen:200419

Contact details of provider:
Web page:

Related research

Keywords: option pricing; inequality; markov chains;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:


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. Berridge, S.J. & Schumacher, J.M., 2004. "An Irregular Grid Approach for Pricing High-Dimensional American Options," Discussion Paper 2004-18, Tilburg University, Center for Economic Research.
  2. Boyle, Phelim P. & Kolkiewicz, Adam W. & Tan, Ken Seng, 2003. "An improved simulation method for pricing high-dimensional American derivatives," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 62(3), pages 315-322.
  3. M. A. H. Dempster & J. P. Hutton, 1999. "Pricing American Stock Options by Linear Programming," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 229-254.
  4. L. C. G. Rogers, 2002. "Monte Carlo valuation of American options," Mathematical Finance, Wiley Blackwell, vol. 12(3), pages 271-286.
  5. Evans, Michael & Swartz, Timothy, 2000. "Approximating Integrals via Monte Carlo and Deterministic Methods," OUP Catalogue, Oxford University Press, number 9780198502784, September.
  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(03), pages 383-405, September.
Full references (including those not matched with items on IDEAS)


Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Marjon Ruijter & Kees Oosterlee (CWI), 2012. "Two-dimensional Fourier cosine series expansion method for pricing financial options," CPB Discussion Paper 225, CPB Netherlands Bureau for Economic Policy Analysis.


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


Access and download statistics


When requesting a correction, please mention this item's handle: RePEc:dgr:kubcen:200419. 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: (Richard Broekman).

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.