On the Dangers of a Simplistic American Option Simulation Valuation Method PDF Download
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Author: Nelson Areal
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Chen and Shen (2003) argue that it is possible to improve the Least Squares Monte Carlo Method (LSMC) of Longstaff and Schwartz (2001) to value American options by removing the least squares regression module. This would make not only faster but also more accurate. We demonstrate, using a large sample of 2500 put options that the proposed algorithm - the Perfect Foresight Method (PFM) - is, as argued by the authors, faster than the LSMC algorithm but, contrary to what they state, it is not more accurate than the LSMC. In fact, the PFM algorithm incorrectly prices American options, resulting in an upward biased value of the option. We therefore, do not recommend the use of the PFM.
Author: Nelson Areal
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Chen and Shen (2003) argue that it is possible to improve the Least Squares Monte Carlo Method (LSMC) of Longstaff and Schwartz (2001) to value American options by removing the least squares regression module. This would make not only faster but also more accurate. We demonstrate, using a large sample of 2500 put options that the proposed algorithm - the Perfect Foresight Method (PFM) - is, as argued by the authors, faster than the LSMC algorithm but, contrary to what they state, it is not more accurate than the LSMC. In fact, the PFM algorithm incorrectly prices American options, resulting in an upward biased value of the option. We therefore, do not recommend the use of the PFM.
Author: Francis A. Longstaff
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
This paper presents a simple yet powerful new approach for valuing American options by simulation. The key to this approach is to use least squares to estimate the conditional expected payoff to the optionholder from continuation. This makes this approach readily applicable in path-dependent and multifactor situations where traditional finite difference and binomial techniques cannot be used. We illustrate this technique with a series of realistic examples ranging from the valuation of an American put in a single-factor setting to the valuation of a deferred American swaption in a twenty-factor string model of the term structure.
Author: Ngai Hang Chan
Publisher: John Wiley & Sons
ISBN: 1118735935
Category : Mathematics
Languages : en
Pages : 228
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Book Description
Praise for the First Edition “…a nice, self-contained introduction to simulation and computational techniques in finance…” – Mathematical Reviews Simulation Techniques in Financial Risk Management, Second Edition takes a unique approach to the field of simulations by focusing on techniques necessary in the fields of finance and risk management. Thoroughly updated, the new edition expands on several key topics in these areas and presents many of the recent innovations in simulations and risk management, such as advanced option pricing models beyond the Black–Scholes paradigm, interest rate models, MCMC methods including stochastic volatility models simulations, model assets and model-free properties, jump diffusion, and state space modeling. The Second Edition also features: Updates to primary software used throughout the book, Microsoft Office® Excel® VBA New topical coverage on multiple assets, model-free properties, and related models More than 300 exercises at the end of each chapter, with select answers in the appendix, to help readers apply new concepts and test their understanding Extensive use of examples to illustrate how to use simulation techniques in risk management Practical case studies, such as the pricing of exotic options; simulations of Greeks in hedging; and the use of Bayesian ideas to assess the impact of jumps, so readers can reproduce the results of the studies A related website with additional solutions to problems within the book as well as Excel VBA and S-Plus computer code for many of the examples within the book Simulation Techniques in Financial Risk Management, Second Edition is an invaluable resource for risk managers in the financial and actuarial industries as well as a useful reference for readers interested in learning how to better gauge risk and make more informed decisions. The book is also ideal for upper-undergraduate and graduate-level courses in simulation and risk management.
Author: Tomas Kliestik
Publisher: MDPI
ISBN: 3036505369
Category : Business & Economics
Languages : en
Pages : 164
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Book Description
The purpose of the Special Issue “Quantitative Methods in Economics and Finance” of the journal Risks was to provide a collection of papers that reflect the latest research and problems of pricing complex derivates, simulation pricing, analysis of financial markets, and volatility of exchange rates in the international context. This book can be used as a reference for academicians and researchers who would like to discuss and introduce new developments in the field of quantitative methods in economics and finance and explore applications of quantitative methods in other business areas.
Author: Eduardo S. Schwartz
Publisher: MIT Press
ISBN: 9780262693189
Category : Business & Economics
Languages : en
Pages : 890
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Book Description
The study of investment under uncertainty was stagnant for several decades until developments in real options revitalized the field. The topics covered in this book include the reasons behind the under-investment programme.
Author: Paul Wilmott
Publisher: John Wiley & Sons
ISBN: 1118836790
Category : Business & Economics
Languages : en
Pages : 743
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Book Description
Paul Wilmott Introduces Quantitative Finance, Second Edition is an accessible introduction to the classical side of quantitative finance specifically for university students. Adapted from the comprehensive, even epic, works Derivatives and Paul Wilmott on Quantitative Finance, Second Edition, it includes carefully selected chapters to give the student a thorough understanding of futures, options and numerical methods. Software is included to help visualize the most important ideas and to show how techniques are implemented in practice. There are comprehensive end-of-chapter exercises to test students on their understanding.
Author: Khaled Elbagory
Publisher: Springer Nature
ISBN: 9464634081
Category :
Languages : en
Pages : 725
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Book Description
Author: Dessislava A. Pachamanova
Publisher: John Wiley & Sons
ISBN: 0470882123
Category : Business & Economics
Languages : en
Pages : 786
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Book Description
An introduction to the theory and practice of financial simulation and optimization In recent years, there has been a notable increase in the use of simulation and optimization methods in the financial industry. Applications include portfolio allocation, risk management, pricing, and capital budgeting under uncertainty. This accessible guide provides an introduction to the simulation and optimization techniques most widely used in finance, while at the same time offering background on the financial concepts in these applications. In addition, it clarifies difficult concepts in traditional models of uncertainty in finance, and teaches you how to build models with software. It does this by reviewing current simulation and optimization methodology-along with available software-and proceeds with portfolio risk management, modeling of random processes, pricing of financial derivatives, and real options applications. Contains a unique combination of finance theory and rigorous mathematical modeling emphasizing a hands-on approach through implementation with software Highlights not only classical applications, but also more recent developments, such as pricing of mortgage-backed securities Includes models and code in both spreadsheet-based software (@RISK, Solver, Evolver, VBA) and mathematical modeling software (MATLAB) Filled with in-depth insights and practical advice, Simulation and Optimization Modeling in Finance offers essential guidance on some of the most important topics in financial management.
Author: Lee-Ming Tan
Publisher: Springer
ISBN: 9811081476
Category : Business & Economics
Languages : en
Pages : 181
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Book Description
This book is a compilation of the best papers presented at the 2017 installment of the Asia-Pacific Conference on Economics & Finance (APEF), which is held annually in Singapore. With a great number of submissions, it presents the latest research findings in economics and finance and discusses relevant issues in today's world. The book is a useful resource for readers who want access to economics, finance and business research focusing on the Asia-Pacific region.
Author: Johnathan Mun
Publisher: John Wiley & Sons
ISBN: 0471706027
Category : Business & Economics
Languages : en
Pages : 335
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Book Description
A comprehensive guide to understanding the implications andapplications of valuing employee stock options in light of the newFAS 123 requirements Due to the new requirements of the Proposed Statement of FinancialAccounting Standards (FAS 123) released by the Financial AccountingStandards Board (FASB)-namely the fact that employee servicesreceived in exchange for equity instruments be recognized infinancial statements-companies are now scrambling to learn how tovalue and expense employee stock options (ESOs). Based on authorDr. Johnathan Mun's consulting and advisory work with the FASBconsulting projects with several Fortune 500 firms, ValuingEmployee Stock Options provides readers with a comprehensive lookat this complex issue. Filled with valuable information on binomial lattice andclosed-form modeling techniques, Valuing Employee Stock Options canhelp financial professionals make informed decisions whenattempting to ascertain the fair-market value of ESOs under the newrequirements. Johnathan Mun, PhD, MBA, MS, CFC, FRM (San Francisco, CA), is VicePresident of Analytical Services at Decisioneering, Inc., themakers of Crystal Ball analytical software. He is also the authorof Applied Risk Analysis (0-471-47885-7), Real Options Analysis(0-471-25696-X), and Real Options Analysis Course (0-471-43001-3),all of which are published by Wiley.
