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Enhanced policy iteration for American options via scenario selection


Schoenmakers, John; Bender, Christian; Kolodko, Anastasia


Bitte beziehen Sie sich beim Zitieren dieses Dokumentes immer auf folgenden Persistent Identifier (PID):http://nbn-resolving.de/urn:nbn:de:0168-ssoar-221003

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Abstract Kolodko and Schoenmakers (2006) and Bender and Schoenmakers (2006) introduced a policy iteration that allows the achievement of a tight lower approximations of the price for early exercise options via a nested Monte Carlo simulation in a Markovian setting. In this paper we enhance the algorithm by a scenario selection method. It is demonstrated by numerical examples that the scenario selection can significantly reduce the number of inner simulations actually performed, and thus can greatly speed up the method (by up to a factor of 15 in some examples). Moreover, it is shown that the modified algorithm retains the desirable properties of the original, such as the monotone improvement property, termination after a finite number of iteration steps, and numerical stability.
Klassifikation Allgemeines, spezielle Theorien und "Schulen", Methoden, Entwicklung und Geschichte der Wirtschaftswissenschaften; Wirtschaftsstatistik, Ökonometrie, Wirtschaftsinformatik
Freie Schlagwörter American-style derivative securities; Monte Carlo methods; Optimal policies; Pricing of derivatives securities
Sprache Dokument Englisch
Publikationsjahr 2008
Seitenangabe S. 135-146
Zeitschriftentitel Quantitative Finance, 8 (2008) 2
DOI http://dx.doi.org/10.1080/14697680701253013
Status Postprint; begutachtet (peer reviewed)
Lizenz PEER Licence Agreement (applicable only to documents from PEER project)