We develop a novel pricing strategy that approximates the value of an American option with exotic features through a portfolio of European options with different maturities. Among our findings, we show that: (i) our model is numerically robust in pricing plain vanilla American options; (ii) the...

This paper demonstrates that it is possible to improve significantly on the estimated call prices obtained with the regression and simulation-based least-squares Monte Carlo method by using put-call symmetry. The results show that, for a large sample of options with characteristics of relevance...

In this paper, I study risk-neutral probability densities regarding future Libor rates denominated in British pounds, euros, and US dollars as implied by option prices. I apply Breeden and Litzenberger's (1978) result regarding the relationship between option prices and implied probabilities for...

Investment behaviour, techniques and choices have evolved in the options markets since the launch of options trading in 1973. Today, we are entering the field of Big Data and the explosion of information, which has become the main feature of science, impacts investors' decisions and their...

We study both theoretically and empirically option prices on firms undergoing a cash merger offer. To estimate the merger's success probability, we use a Markov Chain Monte Carlo (MCMC) method using a state space representation of our model. Our estimated probability measure has significant...

Motivated by the changing nature of the natural gas industry in the European Union driven by the liberalization process, we focus on pricing of gas swing options. These options are embedded in typical gas sales agreements in the form of offtake flexibility concerning volume and time. The gas...

In Longstaff and Schwartz (2001) a method for American option pricing using simulation and regression is suggested, and since then the method has rapidly gained importance. However, the idea of using regression and simulation for American option pricing was used at least as early as in Carriere...

The recently developed rough Bergomi (rBergomi) model is a rough fractional stochastic volatility (RFSV) model which can generate more realistic term structure of at-the-money volatility skews compared with other RFSV models. However, its non-Markovianity brings mathematical and computational...

We describe general multilevel Monte Carlo methods that estimate the price of an Asian option monitored at m fixed dates. For a variety of processes that can be simulated exactly, we prove that, for the same computational cost, our method yields an unbiased estimator with variance lower than the...