Journal
REVIEW OF FINANCIAL STUDIES
Volume 14, Issue 1, Pages 113-147Publisher
OXFORD UNIV PRESS INC
DOI: 10.1093/rfs/14.1.113
Keywords
-
Categories
Ask authors/readers for more resources
This article presents a simple yet powerful new approach for approximating the value of American options by simulation. The key to this approach is the use of least squares to estimate the conditional expected payoff to the optionholder from continuation. This makes this approach readily applicable in path-dependent and multifactor situations where traditional finite difference techniques cannot be used. We illustrate this technique with several realistic examples including valuing an option when the underlying asset follows a jump-diffusion process and valuing an American swaption in a 20-factor suing model of the term structure.
Authors
I am an author on this paper
Click your name to claim this paper and add it to your profile.
Reviews
Recommended
No Data Available