[R-SIG-Finance] American basket options

[Moshe Olshansky]

Thank you!

I heard about that method. Now I will check it more
carefully. 
Is is the only Monte Carlo based method?
Any idea about it's accuracy?

As to programming, I think that there is a version of
it in QuantLib (the C++ version). Has anybody used it?

I will share my experiences with the list.

Regards,

Moshe.

--- Wojciech Slusarski <wojciech.slusarski at gmail.com>
wrote:

> 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 ¦lusarski
> 
> 
> 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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