Applying model reference adaptive search to American-style option pricing
Abstract
This paper considers the application of stochastic optimization methods to American-style option pricing. We apply a randomized optimization algorithm called Model Reference Adaptive Search (MRAS) to pricing American-style options by parameterizing the early exercise boundary. Numerical results are provided for pricing American-style call and put options written on underlying assets following geometric Brownian motion and Merton jump-diffusion processes. The results from the MRAS algorithm are also compared with the Cross-Entropy (CE) method.
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- Applying model reference adaptive search to American-style option pricing
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Published In
December 2006
2429 pages
ISBN:1424405017
- Editors:
- L. Felipe Perrone,
- Barry G. Lawson,
- Jason Liu,
- Frederick P. Wieland,
- General Chair:
- David Nicol,
- Program Chair:
- Richard Fujimoto
Sponsors
- IIE: Institute of Industrial Engineers
- ASA: American Statistical Association
- IEICE ESS: Institute of Electronics, Information and Communication Engineers, Engineering Sciences Society
- IEEE-CS\DATC: The IEEE Computer Society
- SIGSIM: ACM Special Interest Group on Simulation and Modeling
- NIST: National Institute of Standards and Technology
- (SCS): The Society for Modeling and Simulation International
- INFORMS-CS: Institute for Operations Research and the Management Sciences-College on Simulation
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Winter Simulation Conference
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Published: 03 December 2006
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WSC '06 Paper Acceptance Rate 177 of 252 submissions, 70%;
Overall Acceptance Rate 3,413 of 5,075 submissions, 67%
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