Analyzing the Bias in the Primal-Dual Upper Bound Method for Early Exercisable Derivatives: Bounds, Estimation and Removal

25 Pages Posted: 27 Mar 2014 Last revised: 15 Jun 2015

See all articles by Mark S. Joshi

Mark S. Joshi

University of Melbourne - Centre for Actuarial Studies (deceased)

Date Written: June 15, 2015

Abstract

We analyze the primal-dual upper bound method and prove that its bias is inversely proportional to the number of paths in sub-simulations for a large class of cases. We develop a methodology for estimating and reducing the bias. We present numerical results showing that the new technique is indeed effective.

Keywords: Bermudan option, upper bounds, Monte Carlo simulation

Suggested Citation

Joshi, Mark, Analyzing the Bias in the Primal-Dual Upper Bound Method for Early Exercisable Derivatives: Bounds, Estimation and Removal (June 15, 2015). Available at SSRN: https://ssrn.com/abstract=2415594 or http://dx.doi.org/10.2139/ssrn.2415594

Mark Joshi (Contact Author)

University of Melbourne - Centre for Actuarial Studies (deceased) ( email )

Melbourne, 3010
Australia

Register to save articles to
your library

Register

Paper statistics

Downloads
176
rank
165,676
Abstract Views
910
PlumX Metrics