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Parallel American Monte Carlo

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  • Calypso Herrera
  • Louis Paulot

Abstract

In this paper we introduce a new algorithm for American Monte Carlo that can be used either for American-style options, callable structured products or for computing counterparty credit risk (e.g. CVA or PFE computation). Leveraging least squares regressions, the main novel feature of our algorithm is that it can be fully parallelized. Moreover, there is no need to store the paths and the payoff computation can be done forwards: this allows to price structured products with complex path and exercise dependencies. The key idea of our algorithm is to split the set of paths in several subsets which are used iteratively. We give the convergence rate of the algorithm. We illustrate our method on an American put option and compare the results with the Longstaff-Schwartz algorithm.

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  • Calypso Herrera & Louis Paulot, 2014. "Parallel American Monte Carlo," Papers 1404.1180, arXiv.org.
  • Handle: RePEc:arx:papers:1404.1180
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    References listed on IDEAS

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    1. Lars Stentoft, 2004. "Convergence of the Least Squares Monte Carlo Approach to American Option Valuation," Management Science, INFORMS, vol. 50(9), pages 1193-1203, September.
    2. Doan, Viet_Dung & Gaikwad, Abhijeet & Bossy, Mireille & Baude, Françoise & Stokes-Rees, Ian, 2010. "Parallel pricing algorithms for multi-dimensional Bermudan/American options using Monte Carlo methods," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 81(3), pages 568-577.
    3. Barraquand, Jérôme & Martineau, Didier, 1995. "Numerical Valuation of High Dimensional Multivariate American Securities," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(03), pages 383-405, September.
    4. 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.
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