The Stochastic Grid Bundling Method :Efficient pricing of Bermudan options and their Greeks
Applied Mathematics and Computation , Volume 269 p. 412- 431
This paper describes a practical simulation-based algorithm, which we call the Stochastic Grid Bundling Metho d(SGBM) for pricing multdimensional Bermudan (i.e.discretely exercisable) options. The method generates a direct estimator of the option price, an optimal early-exercise policy as well as a lower bound value for the option price. An advantage of SGBM is that the method can be used for fast approximation of the Greeks (i.e., derivatives with respect to the underlying spot prices, such as delta, gamma, etc.) for Bermudan-style options. Computational results for various multi-dimensional Bermudan options demonstrate the simplicity and efficiency of the algorithm proposed.
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|Applied Mathematics and Computation|
Jain, S, & Oosterlee, C.W. (2015). The Stochastic Grid Bundling Method :Efficient pricing of Bermudan options and their Greeks. Applied Mathematics and Computation, 269, 412–431. doi:10.1016/j.amc.2015.07.085