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Convergence and Biases of Monte Carlo estimates of American option prices using a parametric exercise rule

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  • Garcia, Diego

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  • Garcia, Diego, 2003. "Convergence and Biases of Monte Carlo estimates of American option prices using a parametric exercise rule," Journal of Economic Dynamics and Control, Elsevier, vol. 27(10), pages 1855-1879, August.
    • Handle: RePEc:eee:dyncon:v:27:y:2003:i:10:p:1855-1879
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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, Society for Financial Studies, vol. 14(1), pages 113-147.
    2. Boyle, Phelim & Broadie, Mark & Glasserman, Paul, 1997. "Monte Carlo methods for security pricing," Journal of Economic Dynamics and Control, Elsevier, vol. 21(8-9), pages 1267-1321, June.
    3. Carriere, Jacques F., 1996. "Valuation of the early-exercise price for options using simulations and nonparametric regression," Insurance: Mathematics and Economics, Elsevier, vol. 19(1), pages 19-30, December.
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    5. Anthony A. Smith, Jr., 1991. "Solving Stochastic Dynamic Programming Problems Using Rules Of Thumb," Working Paper 816, Economics Department, Queen's University.
    6. Alan J. King & R. Tyrrell Rockafellar, 1993. "Asymptotic Theory for Solutions in Statistical Estimation and Stochastic Programming," Mathematics of Operations Research, INFORMS, vol. 18(1), pages 148-162, February.
    7. Kaushik Amin & Ajay Khanna, 1994. "Convergence Of American Option Values From Discrete‐ To Continuous‐Time Financial Models1," Mathematical Finance, Wiley Blackwell, vol. 4(4), pages 289-304, October.
    8. Geweke, John, 1996. "Monte carlo simulation and numerical integration," Handbook of Computational Economics, in: H. M. Amman & D. A. Kendrick & J. Rust (ed.), Handbook of Computational Economics, edition 1, volume 1, chapter 15, pages 731-800, Elsevier.
    9. He, Hua, 1990. "Convergence from Discrete- to Continuous-Time Contingent Claims Prices," Review of Financial Studies, Society for Financial Studies, vol. 3(4), pages 523-546.
    10. Geske, Robert & Johnson, Herb E, 1984. "The American Put Option Valued Analytically," Journal of Finance, American Finance Association, vol. 39(5), pages 1511-1524, December.
    11. Mark Broadie & Jérôme Detemple, 1997. "The Valuation of American Options on Multiple Assets," Mathematical Finance, Wiley Blackwell, vol. 7(3), pages 241-286, July.
    12. Gao, Bin & Huang, Jing-zhi & Subrahmanyam, Marti, 2000. "The valuation of American barrier options using the decomposition technique," Journal of Economic Dynamics and Control, Elsevier, vol. 24(11-12), pages 1783-1827, October.
    13. Kim, In Joon, 1990. "The Analytic Valuation of American Options," Review of Financial Studies, Society for Financial Studies, vol. 3(4), pages 547-572.
    14. Philip Protter & Emmanuelle Clément & Damien Lamberton, 2002. "An analysis of a least squares regression method for American option pricing," Finance and Stochastics, Springer, vol. 6(4), pages 449-471.
    15. Broadie, Mark & Detemple, Jerome, 1996. "American Option Valuation: New Bounds, Approximations, and a Comparison of Existing Methods," The Review of Financial Studies, Society for Financial Studies, vol. 9(4), pages 1211-1250.
    16. 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.
    17. Krusell, Per & Smith, Anthony Jr., 1996. "Rules of thumb in macroeconomic equilibrium A quantitative analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 20(4), pages 527-558, April.
    18. 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.
    19. Ju, Nengjiu, 1998. "Pricing an American Option by Approximating Its Early Exercise Boundary as a Multipiece Exponential Function," Review of Financial Studies, Society for Financial Studies, vol. 11(3), pages 627-646.
    20. L. C. G. Rogers, 2002. "Monte Carlo valuation of American options," Mathematical Finance, Wiley Blackwell, vol. 12(3), pages 271-286, July.
    21. Broadie, Mark & Glasserman, Paul, 1997. "Pricing American-style securities using simulation," Journal of Economic Dynamics and Control, Elsevier, vol. 21(8-9), pages 1323-1352, June.
    22. Longstaff, Francis A & Schwartz, Eduardo S, 2001. "Valuing American Options by Simulation: A Simple Least-Squares Approach," University of California at Los Angeles, Anderson Graduate School of Management qt43n1k4jb, Anderson Graduate School of Management, UCLA.
    23. Hans M. Amman & David A. Kendrick, . "Computational Economics," Online economics textbooks, SUNY-Oswego, Department of Economics, number comp1.
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    Cited by:

    1. Seiji Harikae & James S. Dyer & Tianyang Wang, 2021. "Valuing Real Options in the Volatile Real World," Production and Operations Management, Production and Operations Management Society, vol. 30(1), pages 171-189, January.
    2. Ammann, Manuel & Kind, Axel & Wilde, Christian, 2008. "Simulation-based pricing of convertible bonds," Journal of Empirical Finance, Elsevier, vol. 15(2), pages 310-331, March.
    3. Calypso Herrera & Florian Krach & Pierre Ruyssen & Josef Teichmann, 2021. "Optimal Stopping via Randomized Neural Networks," Papers 2104.13669, arXiv.org, revised Dec 2023.
    4. Leif Andersen & Mark Broadie, 2004. "Primal-Dual Simulation Algorithm for Pricing Multidimensional American Options," Management Science, INFORMS, vol. 50(9), pages 1222-1234, September.
    5. Axel Kind, 2005. "Pricing American-Style Options By Simulation," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 19(1), pages 109-116, June.
    6. Lukas Gonon, 2022. "Deep neural network expressivity for optimal stopping problems," Papers 2210.10443, arXiv.org.
    7. Guarin, Alexander & Liu, Xiaoquan & Ng, Wing Lon, 2014. "Recovering default risk from CDS spreads with a nonlinear filter," Journal of Economic Dynamics and Control, Elsevier, vol. 38(C), pages 87-104.
    8. Lars Stentoft, 2013. "American option pricing using simulation with an application to the GARCH model," Chapters, in: Adrian R. Bell & Chris Brooks & Marcel Prokopczuk (ed.), Handbook of Research Methods and Applications in Empirical Finance, chapter 5, pages 114-147, Edward Elgar Publishing.
    9. Kateryna Mishchenko & Volodymyr Mishchenko & Anatoliy Malyarenko, 2007. "Adapted Downhill Simplex Method for Pricing Convertible Bonds," Papers 0710.0241, arXiv.org.
    10. A. Max Reppen & H. Mete Soner & Valentin Tissot-Daguette, 2022. "Neural Optimal Stopping Boundary," Papers 2205.04595, arXiv.org, revised May 2023.
    11. Almeida, Caio & Pereira, Leonardo Tavares, 2016. "Pricing Options Embedded in Debentures with Credit Risk," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 36(1), March.
    12. Song-Ping Zhu & Nhat-Tan Le & Wen-Ting Chen & Xiaoping Lu, 2015. "Pricing Parisian down-and-in options," Papers 1511.01564, arXiv.org.

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