Monte Carlo Bounds for Game Options Including Convertible Bonds

24 Pages Posted: 31 Mar 2010 Last revised: 30 Nov 2010

Christopher Beveridge

University of Melbourne - Centre for Actuarial Studies

Mark S. Joshi

University of Melbourne - Centre for Actuarial Studies

Date Written: March 24, 2010

Abstract

We introduce two new methods to calculate bounds for zero-sum game options using Monte Carlo simulation. These extend and generalise the duality results of Haugh-Kogan/Rogers and Jamshidian to the case where both parties of a contract have Bermudan optionality. It is shown that the Andersen-Broadie method can still be used as a generic way to obtain bounds in the extended framework, and we apply the new results to the pricing of convertible bonds by simulation.

Keywords: game option, convertible bond, Monte Carlo, bounds, duality, Rogers, Jamshidian, Andersen-Broadie

JEL Classification: C, C6, C63, C7, C72, C73, G13

Suggested Citation

Beveridge, Christopher and Joshi, Mark S., Monte Carlo Bounds for Game Options Including Convertible Bonds (March 24, 2010). Available at SSRN: https://ssrn.com/abstract=1577593 or http://dx.doi.org/10.2139/ssrn.1577593

Christopher Beveridge (Contact Author)

University of Melbourne - Centre for Actuarial Studies ( email )

Melbourne, 3010
Australia

Mark Joshi

University of Melbourne - Centre for Actuarial Studies ( email )

Melbourne, 3010
Australia

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