A variance reduction technique for American option pricing

In this paper we are interested in Monte Carlo pricing of American options via the Longstaff–Schwartz algorithm. In particular, we show that it is possible to obtain a variance reduction technique based on importance sampling by means of Girsanov theorem. The almost sure convergence of the modified algorithm and a central limit theorem were proved. Here, we summarise the theoretical results and some numerical outcomes.

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Year of publication:	2004
Authors:	Moreni, Nicola
Published in:	Physica A: Statistical Mechanics and its Applications. - Elsevier, ISSN 0378-4371. - Vol. 338.2004, 1, p. 292-295
Publisher:	Elsevier
Subject:	American options \| Monte Carlo \| Variance reduction

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Type of publication:	Article
Source:	RePEc - Research Papers in Economics

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