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MONTE CARLO METHODS FOR THE VALUATION OF MULTIPLE‐EXERCISE OPTIONS
Author(s) -
Meinshausen N.,
Hambly B. M.
Publication year - 2004
Publication title -
mathematical finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.98
H-Index - 81
eISSN - 1467-9965
pISSN - 0960-1627
DOI - 10.1111/j.0960-1627.2004.00205.x
Subject(s) - monte carlo method , monte carlo methods for option pricing , valuation of options , binomial options pricing model , valuation (finance) , quasi monte carlo method , econometrics , derivative (finance) , asian option , convergence (economics) , rate of convergence , hybrid monte carlo , computer science , economics , mathematical optimization , markov chain monte carlo , mathematics , financial economics , finance , statistics , channel (broadcasting) , computer network , economic growth
We discuss Monte Carlo methods for valuing options with multiple‐exercise features in discrete time. By extending the recently developed duality ideas for American option pricing, we show how to obtain estimates on the prices of such options using Monte Carlo techniques. We prove convergence of our approach and estimate the error. The methods are applied to options in the energy and interest rate derivative markets.