Mark Broadie

“Early Exercise Options: Upper Bounds”

Coauthor(s): Leif Andersen.

Editors: Rama Cont

Abstract:

In this article, we discuss how to generate upper bounds for American or Bermudan securities by Monte Carlo methods. These techniques provide a useful supplement to strategies that provide lower bound estimates (e.g. eqf13-006 and eqf13-025), allowing one to both generate valid confidence intervals for the true option price and to test the accuracy to any proposed approximation to the optimal exercise strategy.

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