Monte Carlo Bounds for Game Options Including Convertible Bonds

Authors:
Christopher Beveridge;Mark Joshi
Affiliations:
Centre for Actuarial Studies, Department of Economics, University of Melbourne, Victoria 3010, Australia;Centre for Actuarial Studies, Department of Economics, University of Melbourne, Victoria 3010, Australia
Venue:
Management Science
Year:
2011

Citing 2
Cited 0

Pricing American Options: A Duality Approach

Operations Research
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Abstract

We introduce two new methods to calculate bounds for zero-sum game options using Monte Carlo simulation. These extend and generalize upper-bound duality results to the case where both parties of a contract have Bermudan optionality. It is shown that the primal-dual simulation method can still be used as a generic way to obtain bounds in the extended framework, and we apply the new results to the pricing of convertible bonds by simulation. This paper was accepted by Wei Xiong, finance.