Lattice Option Pricing By Multidimensional Interpolation
AbstractThis note proposes a method for pricing high-dimensional American options based on modern methods of multidimensional interpolation. The method allows using sparse grids and thus mitigates the curse of dimensionality. A framework of the pricing algorithm and the corresponding interpolation methods are discussed, and a theorem is demonstrated that suggests that the pricing method is less vulnerable to the curse of dimensionality. The method is illustrated by an application to rainbow options and compared to Least Squares Monte Carlo and other benchmarks.
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Bibliographic InfoPaper provided by EconWPA in its series Finance with number 0309003.
Length: 17 pages
Date of creation: 07 Sep 2003
Date of revision: 29 Oct 2004
Note: Type of Document - pdf; prepared on IBM PC ; pages: 17; figures: included
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interpolation; option pricing;
Other versions of this item:
- Vladislav Kargin, 2005. "Lattice Option Pricing By Multidimensional Interpolation," Mathematical Finance, Wiley Blackwell, vol. 15(4), pages 635-647.
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
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