Movatterモバイル変換


[0]ホーム

URL:


Skip to main content

Advertisement

Springer Nature Link
Log in

Monte Carlo Simulation for American Options

  • Chapter
  • 571Accesses

  • 4Citations

Abstract

This paper reviews the basic properties of American options and the difficulties of applying Monte Carlo valuation to American options. Asymptotic results by Keller and co-workers are described for the singularity in the early exercise boundary for time t near the final time T. Recent progress on application of Monte Carlo to American options is described including the following: Branching processes have been constructed to obtain upper and lower bounds on the American option price. A Martingale optimization formulation for the American option price can be used to obtain an upper bound on the price, which is complementary to the trivial lower bound. The Least Squares Monte Carlo (LSM) provides a direct method for pricing American options. Quasi-random sequences have been used to improve performance of LSM; a brief introduction to quasi-random sequences is presented. Conclusions and prospects for future research are discussed. In particular, we expect that the asymptotic results of Keller and co-workers could be useful for improving Monte Carlo methods.

This is a preview of subscription content,log in via an institution to check access.

Access this chapter

Subscribe and save

Springer+ Basic
¥17,985 /Month
  • Get 10 units per month
  • Download Article/Chapter or eBook
  • 1 Unit = 1 Article or 1 Chapter
  • Cancel anytime
Subscribe now

Buy Now

Chapter
JPY 3498
Price includes VAT (Japan)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
JPY 11439
Price includes VAT (Japan)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
JPY 14299
Price includes VAT (Japan)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide -see info
Hardcover Book
JPY 14299
Price includes VAT (Japan)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide -see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

Similar content being viewed by others

References

  1. P. Acworth and M. Broadie and P. Glasserman. A Comparison of some Monte Carlo and quasi Monte Carlo techniques for option pricing. preprint, 1997.

    Google Scholar 

  2. L. Andersen and M. Broadie. A primal-dual simulation algorithm for pricing multi-dimensional American options. Working Paper, Columbia U., 2001.

    Google Scholar 

  3. F. Black and M. Scholes. The pricing of options and corporate liabilities. J. Political Economy, 81: 637 - 654, 1973.

    Article  Google Scholar 

  4. P. Bratley, B. L. Fox and H. Niederreiter. Algorithm 738 - Programs to generate Niederreiters discrepancy sequences. ACM Transactions on Math. Software, 20: 494 - 495, 1994.

    Article MATH  Google Scholar 

  5. M. Broadie and P. Glasserman. Pricing American-style securities using simulation. Journal of Economic Dynamics & Control, (21):1323– 1352, 1997.

    Google Scholar 

  6. R.E. Caflisch. Monte Carlo and Quasi-Monte Carlo Methods. Acta Numerica, pages 1 - 49, 1998.

    Google Scholar 

  7. R.E. Caflisch and N. Goldenfeld. private communication. 2003.

    Google Scholar 

  8. S.K. Chaudhary. American options and the LSM algorithm: Quasi-random sequences and Brownian bridges. 2003.

    Google Scholar 

  9. S.K. Chaudhary. Numerical upper bounds on Bermudan puts using martingales, the lattice and the LSM. 2003.

    Google Scholar 

  10. J.D. Evans and R. Kuske and J.B. Keller. American options on assets with dividends near expiry. Math. Finance, 12: 219 - 237, 2002.

    Article MathSciNet MATH  Google Scholar 

  11. Henri Faure. Discrépance de Suites Associées à un système de Numération (en Dimension s). Acta Arithmetica, 41: 337 - 351, 1982.

    MathSciNet MATH  Google Scholar 

  12. J. H. Halton. On the efficiency of certain quasi-random sequences of points in evaluating multi-dimensional integrals. Numerische Mathematik, 2: 84 - 90, 1960.

    Article MathSciNet  Google Scholar 

  13. C.B. Haselgrove. A method for numerical integration. Mathematical Computing, 15: 323 - 337, 1961.

    Article MathSciNet MATH  Google Scholar 

  14. L. K. Hua and Y. Wang. Applications of Number Theory to Numerical Analysis. Springer-Verlag, Berlin; New York, 1981.

    Google Scholar 

  15. I. Karatzas and S. E. Shreve Brownian Motion and Stochastic Calculus. Springer, New York, 1991.

    Google Scholar 

  16. W. J. Kennedy and J. E. Gentle. Statistical Computing. Dekker, New York, 1980.

    MATH  Google Scholar 

  17. L. Kogan and M. Haugh. Pricing American options: A duality approach. MIT Sloan School of Management, Working Paper 4340 - 01, 2001.

    Google Scholar 

  18. D. Lamper and S. Howison. private communication. 2002.

    Google Scholar 

  19. F.A. Longstaff and E.S. Schwartz. Valuing American options by simulation: a simple least-squares approach. The Review of Financial Studies, 14 (1): 113 - 147, Spr 2001.

    Google Scholar 

  20. G. Marsaglia. Normal (Gaussian) random variables for supercomputers. The Journal of Supercomputing, 5: 49 - 55, 1991.

    Article MATH  Google Scholar 

  21. R.C. Merton. The theory of rational option pricing. Bell J. Econ. Manag. Science, 4: 141 - 183, 1973.

    MathSciNet  Google Scholar 

  22. W. Morokoff and R.E. Caflisch. A quasi-Monte Carlo approach to particle simulation of the heat equation. SIAM Journal of Numerical Analysis, 30: 1558 - 1573, 1993.

    Article MathSciNet MATH  Google Scholar 

  23. W. Morokoff and R.E. Caflisch. Quasi-random sequences and their discrepancies. SIAM Journal of Scientific and Statistical Computing, 15: 1251 - 79, 1994.

    Article MathSciNet MATH  Google Scholar 

  24. W. Morokoff and R.E. Caflisch. Quasi-Monte Carlo integration. Journal of Computational Physics, 112: 218 - 30, 1995.

    Article MathSciNet  Google Scholar 

  25. B. Moskowitz and R.E.Caflisch. Smoothness and dimension reduction in quasi-Monte Carlo methods. Journal of Mathematical Computer Modelling, 23: 37 - 54, 1996.

    Article MathSciNet MATH  Google Scholar 

  26. H. Niederreiter. Random number generation and quasi-Monte Carlo method. SIAM, Philadelphia, 1992.

    Google Scholar 

  27. A. B. Owen. Monte Carlo Variance of scrambled net quadrature. SIAM Journal of Numerical Analysis, 34: 1884 - 1910, 1997.

    Article MathSciNet MATH  Google Scholar 

  28. W. H. Press and S. A. Teukolsky and W. T. Vettering and B. P. Flannery. Numerical Recipes in C. The Art of Scientific Computing, Second Edition. Cambridge U. Press, 1992.

    Google Scholar 

  29. L. C. G. Rogers. Monte Carlo Valuation of American Options. Mathematical Finance, (12): 271 - 286, 2002.

    Google Scholar 

  30. I.M. Sobol’. Uniformly distributed sequences with additional uniformity property. U.S.S.R. Computational Math. and Math. Phys., 16: 1332 - 1337, 1976.

    MathSciNet  Google Scholar 

  31. J. Spanier and E. H. Maize. Quasi-random methods for estimating integrals using relatively small samples. SIAM Review, 36: 18 - 44, 1994.

    Article MathSciNet MATH  Google Scholar 

  32. L. Stentoft. Convergence of the Least-Squares Monte Carlo Approach to American Option Valuation. Center for Analytical Finance Working Paper Series 113, University of Aarhus School of Business, 2002.

    Google Scholar 

  33. J. A. Tsitsiklis and B. Van Roy. Optimal stopping of Markov processes: Hilbert space theory, approximation algorithms, and an application to pricing high-dimensional financial derivatives. IEEE Transactions on Automatic Control, 44: 1840 - 1851, 1999.

    Article MathSciNet MATH  Google Scholar 

  34. C. P. Xing and H. Niederreiter. A construction of low-discrepancy sequences using global function fields. Acta Arithmetica, 73: 87 - 102, 1995.

    MathSciNet MATH  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Mathematics Department, UCLA, USA

    Russel E. Caflisch & Suneal Chaudhary

Authors
  1. Russel E. Caflisch
  2. Suneal Chaudhary

Editor information

Editors and Affiliations

  1. Department of Aerospace Engineering, Technion — Israel Institute of Technology, Haifa, Israel

    Dan Givoli

  2. Department of Mathematics, University of Basel, Basel, Switzerland

    Marcus J. Grote

  3. Department of Mathematics, Stanford University, Stanford, California, USA

    George C. Papanicolaou

Rights and permissions

Copyright information

© 2004 Springer Science+Business Media Dordrecht

About this chapter

Cite this chapter

Caflisch, R.E., Chaudhary, S. (2004). Monte Carlo Simulation for American Options. In: Givoli, D., Grote, M.J., Papanicolaou, G.C. (eds) A Celebration of Mathematical Modeling. Springer, Dordrecht. https://doi.org/10.1007/978-94-017-0427-4_1

Download citation

Publish with us

Access this chapter

Subscribe and save

Springer+ Basic
¥17,985 /Month
  • Get 10 units per month
  • Download Article/Chapter or eBook
  • 1 Unit = 1 Article or 1 Chapter
  • Cancel anytime
Subscribe now

Buy Now

Chapter
JPY 3498
Price includes VAT (Japan)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
JPY 11439
Price includes VAT (Japan)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
JPY 14299
Price includes VAT (Japan)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide -see info
Hardcover Book
JPY 14299
Price includes VAT (Japan)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide -see info

Tax calculation will be finalised at checkout

Purchases are for personal use only


[8]ページ先頭

©2009-2025 Movatter.jp