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Zbl 1121.91367
Milstein, G.N.; Rei\ss, O.; Schoenmakers, J.
A new Monte Carlo method for American options. (English)
[J] Int. J. Theor. Appl. Finance 7, No. 5, 591-614 (2004). ISSN 0219-0249

Summary: We introduce a new Monte Carlo method for constructing the exercise boundary of an American option in a generalized Black-Scholes framework. Based on a known exercise boundary, it is shown how to price and hedge the American option by Monte Carlo simulation of suitable probabilistic representations in connection with the respective parabolic boundary value problem. The method presented is supported by numerical experiments.

MSC 2000:: *91B28 Finance etc.
60H30 Appl. of stochastic analysis
65C30 Stochastic differential and integral equations

Keywords: determination of the exercise boundary

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Zentralblatt MATH Berlin [Germany]