[R-SIG-Finance] American basket options

[Wojciech Slusarski]

There is an algorithm called OLS Monte Carlo, or Longstaff-Schwarz
algorithm for valuation of american/bermudan options using MC method,
though it can be a bit tricky to programm that for a portfolio of 10
securities and be a bit unstable, though worth of trying. If the
dividends are not high, it should not differ much from a european
option priced using Monte Carlo. If dividends are high, then the price
should be slightly higher.

Regards,
Wojciech Ślusarski


2007/10/9, Moshe Olshansky <m_olshansky at yahoo.com>:
> This is an OTC traded option.
>
> For a European option one can estimate the covariance
> matrix and then use Monte Carlo (taking into account
> the dividends for each stock). This is pretty
> straightforward (well, there may be many ways to
> estimate the covariance matrix but let's use the
> simplest one).
>
> Regards,
>
> Moshe.
>
> --- Krishna Kumar <kriskumar at earthlink.net> wrote:
>
> > I am just curious as to if this is being traded in
> > some market ?.
> >
> > This is probably not very helpful but I don't think
> > a European style
> > basket is there in the existing packages. European
> > style baskets are
> > themselves tricky if you want to get the basket
> > smile right etc.
> > American style baskets will be messy.
> >
> > Cheers
> > Krishna
> >
> >
> >
> >
> > Moshe Olshansky wrote:
> > > Hello,
> > >
> > > Is there any R code which allows to calculate the
> > > price of an American basket option (option on a
> > price
> > > of a portfolio)?
> > > If yes, are there any references to how accurate
> > these
> > > calculations are?
> > > If no, can anybody recommend a relatively easy to
> > use
> > > software doing this?
> > >
> > > Are there any non Monte Carlo methods to compute
> > (even
> > > roughly) the price on an American basket put
> > option on
> > > a portfolio of 10 dividend paying stocks with 6
> > months
> > > maturity?
> > >
> > > Thank you in advance,
> > >
> > > Moshe.
> > >
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