Revisit of stochastic mesh method for pricing American options

Research output: Chapters, Conference Papers, Creative and Literary Works (RGC: 12, 32, 41, 45)32_Refereed conference paper (with ISBN/ISSN)Not applicablepeer-review

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Detail(s)

Original languageEnglish
Title of host publicationProceedings - Winter Simulation Conference
Pages594-601
Publication statusPublished - 2008
Externally publishedYes

Publication series

Name
ISSN (Print)0891-7736

Conference

Title2008 Winter Simulation Conference, WSC 2008
PlaceUnited States
CityMiami, FL
Period7 - 10 December 2008

Abstract

We revisit the stochastic mesh method for pricing American options-from a conditioning viewpoint-rather than the importance sampling viewpoint of Broadie and Glasserman (1997). Starting from this new viewpoint-we derive the weights proposed by Broadie and Glasserman (1997) and show that their weights at each exercise date use only the information of the next exercise date (therefore-we call them forward-looking weights). We also derive new weights that exploit not only the information of the next exercise date but also the information of the last exercise date (therefore-we call them binocular weights). We show how to apply the binocular weights to the Black-Scholes model-more general diffusion models-and the variance-gamma model. We demonstrate the performance of the binocular weights and compare to the performance of the forward-looking weights through numerical experiments. © 2008 IEEE.

Citation Format(s)

Revisit of stochastic mesh method for pricing American options. / Liu, Guangwu; Hong, L. Jeff.

Proceedings - Winter Simulation Conference. 2008. p. 594-601 4736118.

Research output: Chapters, Conference Papers, Creative and Literary Works (RGC: 12, 32, 41, 45)32_Refereed conference paper (with ISBN/ISSN)Not applicablepeer-review