Valuing American Options in a Path Simulation Model

Abstract

The goal of this paper is to dispel the prevailing belief that American-style options cannot be valued efficiently in a simulation model, and thus remove what has been considered a major impediment to the use of simulation models for valuing financial instruments. We present a general algorithm for estimating the value of American options on an underlying instrument or index for which the arbitrage-free probability distribution of paths through time can be simulated. The general algo-rithm is tested by an example for which the exact option premium can be determined. 1.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 279 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.