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AMERICAN OPTION PRICING WITH RANDOMIZED QUASI-MONTE CARLO SIMULATIONS

By B. Johansson, S. Jain, J. Montoya-torres, J. Hugan, E. Yücesan and Maxime Dion

Abstract

We study the pricing of American options using least-squares Monte Carlo combined with randomized quasi-Monte Carlo (RQMC), viewed as a variance reduction method. We find that RQMC reduces both the variance and the bias of the option price obtained in an out-of-sample evaluation of the retained policy, and improves the quality of the returned policy on average. Various sampling methods of the underlying stochastic processes are compared and the variance reduction is analyzed in terms of a functional ANOVA decomposition.

Year: 2011
OAI identifier: oai:CiteSeerX.psu:10.1.1.188.6841
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