A New Class of Dual Upper Bounds for Early Exercisable Derivatives Encompassing Both the Additive and Multiplicative Bounds

10 Pages Posted: 22 Dec 2014 Last revised: 25 Jun 2015

See all articles by Mark S. Joshi

Mark S. Joshi

University of Melbourne - Centre for Actuarial Studies (deceased)

Date Written: June 25, 2015

Abstract

We present a new class of upper bounds for the Monte Carlo pricing of Bermudan derivatives. This class contains both the additive and multiplicative upper bounds as special cases. We also see that the hypothesis that the pay-off is positive for the multiplicative upper bound is unnecessary. The variance of these upper bounds is zero when the optimal hedge is chosen.

Keywords: Bermudan option, Monte Carlo simulation, upper bound

Suggested Citation

Joshi, Mark, A New Class of Dual Upper Bounds for Early Exercisable Derivatives Encompassing Both the Additive and Multiplicative Bounds (June 25, 2015). Available at SSRN: https://ssrn.com/abstract=2541470 or http://dx.doi.org/10.2139/ssrn.2541470

Mark Joshi (Contact Author)

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

Melbourne, 3010
Australia

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