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True upper bounds for Bermudan products via non-nested Monte Carlo

Please always quote using this URN:urn:nbn:de:0296-matheon-4462
  • We present a generic non-nested Monte Carlo procedure for computing true upper bounds for Bermudan products, given an approximation of the Snell envelope. The pleonastic ``true'' stresses that, by construction, the estimator is biased above the Snell envelope. The key idea is a regression estimator for the Doob martingale part of the approximative Snell envelope, which preserves the martingale property. The so constructed martingale may be employed for computing dual upper bounds without nested simulation. In general, this martingale can also be used as a control variate for simulation of conditional expectations. In this context, we develop a variance reduced version of the nested primal-dual estimator (Anderson & Broadie (2004)) and nested consumption based (Belomestny & Milstein (2006)) methods . Numerical experiments indicate the efficiency of the non-nested Monte Carlo algorithm and the variance reduced nested one.

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Metadaten
Author:Denis Belomestny, Christian Bender, John Schoenmakers
URN:urn:nbn:de:0296-matheon-4462
Referee:Peter Imkeller
Document Type:Preprint, Research Center Matheon
Language:English
Date of first Publication:2008/01/22
Release Date:2008/01/17
Institute:Weierstraß-Institut für Angewandte Analysis und Stochastik (WIAS)
Preprint Number:431
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