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Optimal Quantization for the Pricing of Swing Options

Author

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  • Olivier Bardou
  • Sandrine Bouthemy
  • Gilles Pages

Abstract

In this paper we investigate a numerical algorithm for the pricing of swing options, relying on the so-called optimal quantization method. The numerical procedure is described in detail and numerous simulations are provided to assert its efficiency. In particular, we carry out a comparison with the Longstaff-Schwartz algorithm.

Suggested Citation

  • Olivier Bardou & Sandrine Bouthemy & Gilles Pages, 2009. "Optimal Quantization for the Pricing of Swing Options," Applied Mathematical Finance, Taylor & Francis Journals, vol. 16(2), pages 183-217.
    • Handle: RePEc:taf:apmtfi:v:16:y:2009:i:2:p:183-217
    DOI: 10.1080/13504860802453218
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    References listed on IDEAS

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    1. Marcelo G. Figueroa, 2006. "Pricing Multiple Interruptible-Swing Contracts," Birkbeck Working Papers in Economics and Finance 0606, Birkbeck, Department of Economics, Mathematics & Statistics.
    2. repec:dau:papers:123456789/607 is not listed on IDEAS
    3. Helyette Geman, 2005. "Commodities and Commodity Derivatives. Modeling and Pricing for Agriculturals, Metals and Energy," Post-Print halshs-00144182, HAL.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. John Ery & Loris Michel, 2021. "Solving optimal stopping problems with Deep Q-Learning," Papers 2101.09682, arXiv.org.
    2. Dong, Wenfeng & Kang, Boda, 2019. "Analysis of a multiple year gas sales agreement with make-up, carry-forward and indexation," Energy Economics, Elsevier, vol. 79(C), pages 76-96.
    3. Gilles Pag`es & Benedikt Wilbertz, 2011. "GPGPUs in computational finance: Massive parallel computing for American style options," Papers 1101.3228, arXiv.org.
    4. Carl Chiarella & Les Clewlow & Boda Kang, 2016. "The Evaluation Of Multiple Year Gas Sales Agreement With Regime Switching," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 19(01), pages 1-25, February.
    5. Tapio Behrndt & Ren-Raw Chen, 2022. "A New Look at the Swing Contract: From Linear Programming to Particle Swarm Optimization," JRFM, MDPI, vol. 15(6), pages 1-20, May.
    6. Francisco Bernal & Emmanuel Gobet & Jacques Printems, 2020. "Volatility Uncertainty Quantification in a Stochastic Control Problem Applied to Energy," Methodology and Computing in Applied Probability, Springer, vol. 22(1), pages 135-159, March.
    7. Tiziano De Angelis & Yerkin Kitapbayev, 2014. "On the optimal exercise boundaries of swing put options," Papers 1407.6860, arXiv.org, revised Jan 2017.
    8. Anne Laure Bronstein & Gilles Pages & Benedikt Wilbertz, 2010. "How to speed up the quantization tree algorithm with an application to swing options," Quantitative Finance, Taylor & Francis Journals, vol. 10(9), pages 995-1007.
    9. Piergiacomo Sabino, 2021. "Normal Tempered Stable Processes and the Pricing of Energy Derivatives," Papers 2105.03071, arXiv.org.
    10. Corlay Sylvain & Pagès Gilles, 2015. "Functional quantization-based stratified sampling methods," Monte Carlo Methods and Applications, De Gruyter, vol. 21(1), pages 1-32, March.
    11. Thomas Deschatre & Xavier Warin, 2023. "A Common Shock Model for multidimensional electricity intraday price modelling with application to battery valuation," Papers 2307.16619, arXiv.org.
    12. Tiziano De Angelis & Yerkin Kitapbayev, 2018. "On the Optimal Exercise Boundaries of Swing Put Options," Mathematics of Operations Research, INFORMS, vol. 43(1), pages 252-274, February.
    13. Edoli, Enrico & Fiorenzani, Stefano & Ravelli, Samuele & Vargiolu, Tiziano, 2013. "Modeling and valuing make-up clauses in gas swing contracts," Energy Economics, Elsevier, vol. 35(C), pages 58-73.
    14. J. Lars Kirkby & Shi-Jie Deng, 2019. "Swing Option Pricing By Dynamic Programming With B-Spline Density Projection," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 22(08), pages 1-53, December.
    15. Roberto Daluiso & Emanuele Nastasi & Andrea Pallavicini & Giulio Sartorelli, 2020. "Pricing commodity swing options," Papers 2001.08906, arXiv.org.
    16. Anne Laure Bronstein & Gilles Pagès & Jacques Portès, 2013. "Multi-asset American Options and Parallel Quantization," Methodology and Computing in Applied Probability, Springer, vol. 15(3), pages 547-561, September.
    17. Giorgia Callegaro & Luciano Campi & Valeria Giusto & Tiziano Vargiolu, 2017. "Utility indifference pricing and hedging for structured contracts in energy markets," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 85(2), pages 265-303, April.
    18. Nicolas Essis-Breton & Patrice Gaillardetz, 2020. "Fast Lower and Upper Estimates for the Price of Constrained Multiple Exercise American Options by Single Pass Lookahead Search and Nearest-Neighbor Martingale," Papers 2002.11258, arXiv.org.
    19. Vincent Lemaire & Gilles Pag`es & Christian Yeo, 2023. "Swing contract pricing: with and without Neural Networks," Papers 2306.03822, arXiv.org, revised Mar 2024.
    20. Felix, Bastian Joachim & Weber, Christoph, 2012. "Gas storage valuation applying numerically constructed recombining trees," European Journal of Operational Research, Elsevier, vol. 216(1), pages 178-187.
    21. J. Bonnans & Zhihao Cen & Thibault Christel, 2012. "Energy contracts management by stochastic programming techniques," Annals of Operations Research, Springer, vol. 200(1), pages 199-222, November.
    22. Piergiacomo Sabino, 2020. "Exact Simulation of Variance Gamma related OU processes: Application to the Pricing of Energy Derivatives," Papers 2004.06786, arXiv.org.
    23. M. Basei & A. Cesaroni & T. Vargiolu, 2013. "Optimal exercise of swing contracts in energy markets: an integral constrained stochastic optimal control problem," Papers 1307.1320, arXiv.org.
    24. Nicole Bauerle & Viola Riess, 2014. "Gas Storage valuation with regime switching," Papers 1412.1298, arXiv.org.
    25. Piergiacomo Sabino, 2021. "Pricing Energy Derivatives in Markets Driven by Tempered Stable and CGMY Processes of Ornstein-Uhlenbeck Type," Papers 2103.13252, arXiv.org.

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