Skip to main content
Article thumbnail
Location of Repository

On the Stability the Least Squares Monte Carlo

By Oleksii Mostovyi

Abstract

Consider Least Squares Monte Carlo (LSM) algorithm, which is proposed by Longstaff and Schwartz (2001) for pricing American style securities. This algorithm is based on the projection of the value of continuation onto a certain set of basis functions via the least squares problem. We analyze the stability of the algorithm when the number of exercise dates increases and prove that, if the underlying process for the stock price is continuous, then the regression problem is ill-conditioned for small values of the time parameter.Comment: 9 pages, 2 figure

Topics: Quantitative Finance - Computational Finance, Quantitative Finance - Pricing of Securities
Year: 2011
OAI identifier: oai:arXiv.org:1102.3218
Download PDF:
Sorry, we are unable to provide the full text but you may find it at the following location(s):
  • http://arxiv.org/abs/1102.3218 (external link)
  • Suggested articles


    To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.