Mårten Marcus, KTH: A nonparametric alternative to the Longstaff-Schwartz estimation of
conditional expectations for pricing of Bermudan options.
A nonparametric alternative to the Longstaff-Schwartz estimation of
conditional expectations is suggested for pricing of Bermudan options.
The method is based on regularization of a least-squares minimization,
with a Tikhonov-type smoothing put on the partial differential equation
which characterizes the underlying price processes. This approach can
hence be viewed as a combination of the Monte Carlo method with the
PDE method for the estimation of conditional expectations. The esti-
mation method turns out to be robust with regard to the size of the
smoothing parameter."
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