On improving the least squares Monte Carlo option valuation method

• Tipo: Artigo em Revista Científica Internacional
• Data: 2008

Autores

Areal, N (Autor) Outra; Rodrigues, Artur (Autor) FEP; Armada, MR (Autor) Outra

Revista

Título: Review of Derivatives Research

Vol. 11

Páginas: 119-151

ISSN: 1380-6645

Editora: Springer Nature

Indexação

ISI Web of Knowledge - 23 Citações

Scopus - 29 Citações

Outras Informações

ID Authenticus: P-004-1CA

DOI: 10.1007/s11147-008-9026-x

Abstract (EN): This paper studies various possible approaches to improving the least squares Monte Carlo option valuation method. We test different regression algorithms and suggest a variation to estimating the option continuation value, which can reduce the execution time of the algorithm by one third. We test the choice of varying polynomial families with different number of basis functions. We compare several variance reduction techniques, and find that using low discrepancy sequences can improve the accuracy up to four times. We also extend our analysis to compound and mutually exclusive options. For the latter, we propose an improved algorithm which is faster and more accurate.

Idioma: Inglês

Tipo (Avaliação Docente): Científica

Nº de páginas: 33