An improved simulation method for pricing high-dimensional American derivatives

Authors:
Phelim P. Boyle;Adam W. Kolkiewicz;Ken Seng Tan
Affiliations:
Centre for Advanced Studies in Finance, University of Waterloo, Waterloo, Ont., Canada N2L 3G1;Department of Statistics and Actuarial Science, University of Waterloo, Waterloo, Ont., Canada N2L 3G1;Department of Statistics and Actuarial Science, University of Waterloo, Waterloo, Ont., Canada N2L 3G1
Venue:
Mathematics and Computers in Simulation - Special issue: 3rd IMACS seminar on Monte Carlo methods - MCM 2001
Year:
2003

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Abstract

In this paper, we propose an estimator for pricing high-dimensional American-style options and show that asymptotically its upper bias converges to zero. An advantage of the proposed estimator is that when combined with low discrepancy sequences, it exhibits a superior rate of convergence. Numerical examples are conducted to demonstrate its efficiency.