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A computationally efficient state-space partitioning approach to pricing high-dimensional American options via dimension reduction

Listed author(s):
  • Jin, Xing
  • Li, Xun
  • Tan, Hwee Huat
  • Wu, Zhenyu
Registered author(s):

    This paper studies the problem of pricing high-dimensional American options. We propose a method based on the state-space partitioning algorithm developed by Jin et al. (2007) and a dimension-reduction approach introduced by Li and Wu (2006). By applying the approach in the present paper, the computational efficiency of pricing high-dimensional American options is significantly improved, compared to the extant approaches in the literature, without sacrificing the estimation precision. Various numerical examples are provided to illustrate the accuracy and efficiency of the proposed method. Pseudcode for an implementation of the proposed approach is also included.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0377221713004347
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    Article provided by Elsevier in its journal European Journal of Operational Research.

    Volume (Year): 231 (2013)
    Issue (Month): 2 ()
    Pages: 362-370

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    Handle: RePEc:eee:ejores:v:231:y:2013:i:2:p:362-370
    DOI: 10.1016/j.ejor.2013.05.035
    Contact details of provider: Web page: http://www.elsevier.com/locate/eor

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