MONTE CARLO METHODS FOR THE VALUATION OF MULTIPLE-EXERCISE OPTIONS

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...

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Bibliographic Details
Published in:Mathematical finance 2004-10, Vol.14 (4), p.557-583
Main Authors: Meinshausen, N., Hambly, B. M.
Format: Article
Language:English
Subjects:
clvality
Finance
martingale
Mathematical analysis
Mathematical methods
Monte Carlo
Monte Carlo simulation
multiple-exercise options
Options trading
Pricing policies
Studies
swing options
Valuation
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Summary: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.
ISSN:0960-1627
1467-9965
DOI:10.1111/j.0960-1627.2004.00205.x