Variance-Constrained Canonical Least-Squares Monte Carlo: An Accurate Method for Pricing American Options

2011 ◽  
Author(s):  
Qiang Liu
Keyword(s):  
Monte Carlo ◽  
Least Squares ◽  
American Options ◽  
Accurate Method ◽  
Least Squares Monte Carlo

scholarly journals Canonical Least-Squares Monte Carlo Valuation of American Options: Convergence and Empirical Pricing Analysis

2014 ◽  
Vol 2014 ◽  
pp. 1-13 ◽  
Author(s):  
Xisheng Yu ◽  
Qiang Liu
Keyword(s):  
Monte Carlo ◽  
Least Squares ◽  
Legendre Polynomials ◽  
American Options ◽  
Computational Cost ◽  
Monte Carlo Algorithm ◽  
Convergence Properties ◽  
Entropy Model ◽  
Least Squares Monte Carlo ◽  
Convergence Results

The paper by Liu (2010) introduces a method termed the canonical least-squares Monte Carlo (CLM) which combines a martingale-constrained entropy model and a least-squares Monte Carlo algorithm to price American options. In this paper, we first provide the convergence results of CLM and numerically examine the convergence properties. Then, the comparative analysis is empirically conducted using a large sample of the S&P 100 Index (OEX) puts and IBM puts. The results on the convergence show that choosing the shifted Legendre polynomials with four regressors is more appropriate considering the pricing accuracy and the computational cost. With this choice, CLM method is empirically demonstrated to be superior to the benchmark methods of binominal tree and finite difference with historical volatilities.

scholarly journals Pricing 50ETF in the Way of American Options Based on Least Squares Monte Carlo Simulation

2016 ◽  
Vol 2 (2) ◽  
pp. 71
Author(s):  
Shuai Gao ◽  
Jun Zhao
Keyword(s):  
Monte Carlo Simulation ◽  
Monte Carlo ◽  
Stock Market ◽  
Least Squares ◽  
American Options ◽  
Chinese Stock Market ◽  
Least Squares Monte Carlo ◽  
Matlab Program ◽  
S Model ◽  
The Way

50ETF appears on the Chinese stock market on 9th February,2015, the contracts are European Options and the options are priced by B-S model.50ETF is the only one option that can be traded, there are no American Options in Chinese stock market. This paper studies 50ETF pricing analysis in accordance with the way of American Option. We use Least Squares Monte Carlo Simulation to price 50ETF and analyze them, give the numerical results by matlab program. This issue is worth studying, because the paper studies 50ETF, and price it in the way of American Options, we try to employ Monte Carlo Simulation to solve this problem in china and the results of the paper can enrich the option products in the stock market of China.

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