Monte-Carlo Valuation of American Options: Facts and New Algorithms to Improve Existing Methods

Abstract

The aim of this paper is to discuss efficient algorithms for the pricing of American options by two recently proposed Monte-Carlo type methods, namely the Malliavian calculus and the regression based approaches. We explain how both techniques can be exploited with improved complexity and efficiency. We also discuss several techniques for the estimation of the corresponding hedging strategies. Numerical tests and comparisons, including the quantization approach, are performed. © Springer-Verlag Berlin Heidelberg 2012.