Pricing American options via multi-level approximation methods
Computational Finance
2013-12-30 v2
Abstract
In this article we propose a novel approach to reduce the computational complexity of various approximation methods for pricing discrete time American options. Given a sequence of continuation values estimates corresponding to different levels of spatial approximation and time discretization, we propose a multi-level low biased estimate for the price of an American option. It turns out that the resulting complexity gain can be rather high and can even reach the order (\varepsilon^{-1}) with (\varepsilon) denoting the desired precision. The performance of the proposed multilevel algorithm is illustrated by a numerical example of pricing Bermudan max-call options.
Keywords
Cite
@article{arxiv.1303.1334,
title = {Pricing American options via multi-level approximation methods},
author = {Denis Belomestny and Fabian Dickmann and Tigran Nagapetyan},
journal= {arXiv preprint arXiv:1303.1334},
year = {2013}
}