Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/25220
Authors: 
Belomestny, Denis
Milstein, Grigori N.
Schoenmakers, John G. M.
Year of Publication: 
2007
Series/Report no.: 
SFB 649 discussion paper 2007,048
Abstract: 
In this article we propose several pathwise and finite difference based methods for calculating sensitivities of Bermudan options using regression methods and Monte Carlo simulation. These methods rely on conditional probabilistic representations which allow, in combination with a regression approach, for efficient simultaneous computation of sensitivities at many initial positions. Assuming that the price of a Bermudan option can be evaluated sufficiently accurate, we develop a method for constructing deltas based on least squares. We finally propose a testing procedure for assessing the performance of the developed methods.
Subjects: 
American and Bermudan options
Optimal stopping times
Monte Carlo simulation
Deltas
Conditional probabilistic representations
Regression methods
Document Type: 
Working Paper

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