Sensitivities for Bermudan options by regression methods

Arbeitspapier

In this article we propose several pathwise and finite difference based methods for calculating sensitivities of Bermudan options using regression methods and Monte Carlo simulation. These methods rely on conditional probabilistic representations which allow, in combination with a regression approach, for efficient simultaneous computation of sensitivities at many initial positions. Assuming that the price of a Bermudan option can be evaluated sufficiently accurate, we develop a method for constructing deltas based on least squares. We finally propose a testing procedure for assessing the performance of the developed methods.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SFB 649 Discussion Paper ; No. 2007,048

Classification and Topics

• Classification: Wirtschaft
• Subject: American and Bermudan options ; Optimal stopping times ; Monte Carlo simulation ; Deltas ; Conditional probabilistic representations ; Regression methods ; Optionspreistheorie ; Suchtheorie ; Regression ; Monte-Carlo-Methode ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Belomestny, Denis ; Milstein, Grigori N. ; Schoenmakers, John G. M.
• Event: Veröffentlichung
• (who): Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk
• (where): Berlin
• (when): 2007

Further information

• Handle: http://hdl.handle.net/10419/25220
• Last update: 10.03.2025, 11:45 AM CET