Monte Carlo methods for the valuation of multiple exercise options

N. Meinshausen and B.M. Hambly

December 2002

Abstract

We discuss Monte-Carlo methods for pricing 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, showing that this improves on earlier work in the single exercise case. The methods are applied to options in the energy and interest rate derivative markets.

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