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arXiv · 1604.03317

Pricing American options using martingale bases

Jérôme Lelong
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Abstract

In this work, we propose an algorithm to price American options by directly solving the dual minimization problem introduced by Rogers. Our approach relies on approximating the set of uniformly square integrable martingales by a finite dimensional Wiener chaos expansion. Then, we use a sample average approximation technique to efficiently solve the optimization problem. Unlike all the regression based methods, our method can transparently deal with path dependent options without extra computations and a parallel implementation writes easily with very little communication and no centralized work. We test our approach on several multi--dimensional options with up to 40 assets and show the impressive scalability of the parallel implementation.

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Jérôme Lelong. 2016-04-12. Pricing American options using martingale bases. https://arxiv.org/abs/1604.03317

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