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.

Exact Citation:
Andersen, Leif, and Mark Broadie. "Early Exercise Options: Upper Bounds." In Encyclopedia of Quantitative Finance. Ed. Rama Cont. West Sussex: Wiley, April 2010.
Place: West Sussex
Date: 4 2010