A finite dimensional approximation for pricing moving average options

Abstract : We propose a method for pricing American options whose pay-off depends on the moving average of the underlying asset price. The method uses a finite dimensional approximation of the infinite-dimensional dynamics of the moving average process based on a truncated Laguerre series expansion. The resulting problem is a finite-dimensional optimal stopping problem, which we propose to solve with a least squares Monte Carlo approach. We analyze the theoretical convergence rate of our method and present numerical results in the Black-Scholes framework.
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Contributor : Marie Bernhart <>
Submitted on : Monday, January 10, 2011 - 2:53:38 PM
Last modification on : Wednesday, March 27, 2019 - 4:08:31 PM
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  • HAL Id : hal-00554216, version 1

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Marie Bernhart, Peter Tankov, Xavier Warin. A finite dimensional approximation for pricing moving average options. 2010. ⟨hal-00554216⟩

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