Economics - Research Publications

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Start date: 2003 × End date: 2010 × Subject: Bermudan option × Type: Preprint ×

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    A simple derivation of and improvements to Jamshidian’s and Rogers’ upper bound methods for Bermudan options
    Joshi, Mark S. ( 2006-03)
    The additive method for upper bounds for Bermudanoptions is rephrased in terms of buyer’s and seller’s prices. It isshown how to deduce Jamshidian’s upper bound result in a simplefashion from the additive method, including the case of possiblyzero final pay-off. Both methods are improved by ruling out exerciseat sub-optimal points. It is also shown that it is possible to usesub- Monte Carlo simulations to estimate the value of the hedgingportfolio at intermediate points in the Jamshidian method withoutjeopardizing its status as upper bound.