Pricing American Rainbow Options

• Main Authors: Chia-Yu Lin, 林嘉祐
• Other Authors: Jr-Yan Wang
• Format: Others
• Language: en_US
• Published: 2016
• Online Access: http://ndltd.ncl.edu.tw/handle/33904053622079603217

碩士 === 國立臺灣大學 === 國際企業學研究所 === 104 === This paper extends the forward Monte Carlo (FMC) method, which have been developed for the basic types of American options, to the valuation of two-asset American rainbow options. The main advantage of this method is that it does not use backward induction as required by other methods. Instead, the proposed approach relies on a wise determination about whether a pair of simulated stock prices has entered the exercise region. A series of numerical experiments are provided to compare the performance with the binomial tree model and least squares method and demonstrate the efficiency of the forward methods.