Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
4636945 | Applied Mathematics and Computation | 2006 | 10 Pages |
Abstract
When pricing American-style options on d assets by Monte Carlo methods, one usually stores the simulated asset prices at all time steps on all paths in order to determine when to exercise the options. If N time steps and M paths are used, then the storage requirement is d · M · N. In this paper, we give a simulation method to price multi-asset American-style options, where the storage requirement only grows like (d + 1)M + N. The only additional computational cost is that we have to generate each random number twice instead of once. For machines with limited memory, we can now use larger values of M and N to improve the accuracy in pricing the options.
Keywords
Related Topics
Physical Sciences and Engineering
Mathematics
Applied Mathematics
Authors
Raymond H. Chan, Chi-Yan Wong, Kit-Ming Yeung,