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Valuing American Style Options by Least Squares Methods

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Author Info
Mario Cerrato (London Metropolitan University)
Kan Kwok Cheung (London Metropolitan University)

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Abstract

We investigate the finite sample performance of some recent Monte Carlo estimators under different market scenarios. We find that the accuracy and efficiency of these estimators are remarkable, even when more exotic financial instruments are considered. Finally, we extend the Glasserman and Yu (2004b) methodology to price Asian Bermudan options and basket options

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Publisher Info
Paper provided by Money Macro and Finance Research Group in its series Money Macro and Finance (MMF) Research Group Conference 2006 with number 49.

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Date of creation: 02 Feb 2007
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Handle: RePEc:mmf:mmfc06:49

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G12 - Financial Economics - - General Financial Markets - - - Asset Pricing

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  1. Longstaff, Francis A & Schwartz, Eduardo S, 2001. "Valuing American Options by Simulation: A Simple Least-Squares Approach," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 14(1), pages 113-47.
  2. Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, vol. 7(3), pages 229-263, September. [Downloadable!] (restricted)
  3. Rasmussen, Nicki Søndergaard, 2002. "Efficient Control Variates for Monte-Carlo Valuation of American Options," Finance Working Papers 02-17, University of Aarhus, Aarhus School of Business, Department of Business Studies. [Downloadable!]
  4. Lars Stentoft, 2004. "Assessing the Least Squares Monte-Carlo Approach to American Option Valuation," Review of Derivatives Research, Springer, vol. 7(2), pages 129-168, 08. [Downloadable!]
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This page was last updated on 2009-12-9.

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