Abstract
In this paper, a recently developed regression-based option pricing method, the Stochastic Grid Bundling Method (SGBM), is implemented for pricing multidimensional Bermudan options. We compare SGBM to a traditional regression-based pricing approach and present detailed insight in the application of SGBM, including how to configure it and how to reduce the uncertainty of its estimates by control variates. We consider the Merton jump-diffusion model, which performs better than the geometric Brownian motion in modeling the heavy-tail feature of the asset price distributions. Our numerical tests show that SGBM with appropriate setup works satisfactorily on pricing multidimensional options under jump-diffusion asset dynamics.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
