Optimal exercise policies and simulation-based valuation for American-Asian options

Operations Research

Volumn 51, Issue 1, 2003, Pages 52-66

  Wu, Rongwen ^a   Fu, Michael C ^b  

^a Bldg 142   (United States)

^b UNIVERSITY OF MARYLAND   (United States)

Author keywords

Dynamic programming, models: structure of optimal policies; Finance, securities: option pricing; Simulation: perturbation analysis and stochastic approximation

Indexed keywords

ASSET PRICE; OPTIMAL POLICIES; OPTION PRICING; SECURITIES;

ALGORITHMS; APPROXIMATION THEORY; COMPUTATIONAL METHODS; COMPUTER SIMULATION; COSTS; DYNAMIC PROGRAMMING; MATHEMATICAL MODELS; PARAMETER ESTIMATION; PERTURBATION TECHNIQUES; PUBLIC POLICY; RANDOM PROCESSES;

OPERATIONS RESEARCH;

EID: 4243079905     PISSN: 0030364X     EISSN: None     Source Type: Journal    
DOI: 10.1287/opre.51.1.52.12798     Document Type: Article

References (35)

1. Barraquand, J., T. Pudet. 1996. Pricing of American path-dependent contingent claims. Math. Finance 6 17-51.
2. Ben Ameur, H., M. Breton, P. L'Ecuyer. 2002. A dynamic programming procedure for pricing American-style Asian options. Management Sci. 48(5) 625-643.
3. Bergman, Y. Z., B. D. Grundy, Z. Wiener. 1996. General properties of option prices. J. Finance 51 1573-1610.
4. Bertsekas, D. P., J. N. Tsitsiklis. 1995. Neuro-Dynamic Programming. Athena Scientific, Belmont, MA.
5. Boyle, P. P. 1977. Options: A Monte Carlo approach. J. Financial Econom. 4 323-338.
6. _, M. Broadie, P. Glasserman. 1997. Simulation methods for security pricing. J. Econom. Dynamics Control 21 1267-1321.
7. Broadie, M., P. Glasserman. 1997a. Pricing American-style securities using simulation. J. Econom. Dynamics Control 21(8/9) 1323-1352.
8. _, _. 1997b. Monte Carlo methods for pricing high-dimensional American options: An overview. Net Exposure (3) 15-37.
9. _, _. 1997c. A stochastic mesh method for pricing high-dimensional American options. PaineWebber working papers in money, economics and finance #PW9804, Columbia Business School, New York.
10. Cox, J. C., S. A. Ross. 1976. The valuation of options for alternative stochastic processes. J. Financial Econom. 3 145-166.
11. Derman, E., I. Kani. 1994. Riding on a smile. Risk 32-39.
12. Dupire, B. 1994. Pricing with a smile. Risk 18-20.
13. Fu, M. C., J. Q. Hu. 1995. Sensitivity analysis for Monte Carlo simulation of option pricing. Probab. Engrg. Inform. Sci. 9 417-446.
14. _, _. 1997. Conditional Monte Carlo: Gradient Estimation and Optimization Applications. Kluwer Academic Publishers, Norwell, MA.
15. _, D. B. Madan, T. Wang. 1999. Pricing continuous Asian options: A comparison of Monte Carlo and Laplace transform inversion methods. J. Comput. Finance 2 49-74.
16. _, R. Wu, G. Gürkan, A. Y. Demir. 2000. A note on perturbation analysis estimators for American-style options. Probab. Engrg. Inform. Sci. 14 385-392.
17. _, S. B. Laprise, D. B. Madan, Y. Su, R. Wu. 2001. Pricing American options: A comparison of Monte Carlo simulation approaches. J. Computat. Finance 4(3) 39-88.
18. Geman, H., M. Yor. 1993. Bessel process, Asian options, and perpetuities. Math. Finance 3 349-375.
19. Glasserman, P. 1991. Gradient Estimation via Perturbation Analysis. Kluwer Academic Publishers, Norwell, MA.
20. Grant, D., G. Vora, D. Weeks. 1997, Path-dependent options: Extending the Monte Carlo simulation approach. Management Sci. 43 1589-1602.
21. Hansen, A. T., P. L. Jorgenson. 2000. Analytical valuation of American-style Asian options. Management Sci. 46 1116-1136.
22. Harrison, J. M., S. Pliska. 1981. Martingales and stochastic integrals in the theory of continuous trading. Stochastic Processes Appl. 11 215-260.
23. Ho, Y. C., X. R. Cao. 1991. Discrete Event Dynamics Systems and Perturbation Analysis. Kluwer Academic Publishers, Norwell, MA.
24. Hull, J. C., A. White. 1993. Efficient procedures for valuing European and American path-dependent options. J. Derivatives 1 21-31.
25. Karatzas, I., S. E. Shreve. 1998. Methods of Mathematical Finance. Springer-Verlag, New York.
26. Kushner, H. J., G. G. Yin. 1997. Stochastic Approximation Algorithms and Applications. Springer-Verlag, New York.
27. Levy, E. 1992. Pricing European average rate currency options. J. Internat. Money Finance 11 474-491.
28. _, S. Turnbull. 1992. Average intelligence. Risk 53-59.
29. Longstaff, F., E. Schwartz. 2001. Pricing American options by simulation: A simple least-squares approach. Rev. Financial Stud. 14 113-147.
30. Merton, R. C. 1976. Option pricing when underlying stock returns are discontinuous. J. Financial Econom. 3 125-144.
31. Neave, E. 1994. A frequency distribution method for valuing average options. Working paper, Queen's University, Kingston, Ontario, Canada.
32. Tsitsiklis, J. N., B. Van Roy. 2001. Regression methods for pricing complex American-style options. IEEE Trans. Neural Networks 12(4) 694-703.
33. Turnbull, S., L. Wakeman. 1991. A quick algorithm for pricing European average options. J. Financial Quant. Anal. 26 377-389.
34. Vorst, T. 1992. Prices and hedge ratios of average exchange rate options. Internat. Rev. Financial Anal. 1 179-193.
35. Zvan, R., P. A. Forsyth, K. R. Vetzal. 1997. Robust numerical methods for PDE models of Asian options. J. Comput. Finance 1 39-78.