Monte Carlo Evaluation Of American Options Using Consumption Processes
We develop a new approach for pricing both continuous-time and discrete-time American options which is based on the fact that any American option is equivalent to a European one with a consumption process involved. This approach admits the construction of an upper bound (a lower bound) on the true price using some lower bound (an upper bound) by Monte Carlo simulation. A number of effective estimators of upper and lower bounds with the reduced variance are proposed. The method is supported by numerical experiments which look promising.
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Volume (Year): 09 (2006)
Issue (Month): 04 ()
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