Abstract

In this article, we discuss how to generate upper bounds for American or Bermudan securities by Monte Carlo methods. These techniques provide a useful supplement to strategies that provide lower bound estimates (e.g. eqf13-006 and eqf13-025), allowing one to both generate valid confidence intervals for the true option price and to test the accuracy to any proposed approximation to the optimal exercise strategy.

Citation

Andersen, Leif, and Mark Broadie. "Early Exercise Options: Upper Bounds." In Encyclopedia of Quantitative Finance. Ed. Rama Cont. West Sussex: Wiley, April 2010.

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