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Pricing multi-asset American option under Heston stochastic volatility model

Author

Listed:
  • Oldouz Samimi

    (Department of Applied Mathematics, Faculty of Mathematical Sciences, University of Guilan, Rasht, Iran)

  • Farshid Mehrdoust

    (Department of Applied Mathematics, Faculty of Mathematical Sciences, University of Guilan, Rasht, Iran)

Abstract

In this paper, we employ the Least-Squares Monte-Carlo (LSM) algorithm regarding three discretization schemes, namely, the Euler–Maruyama discretization scheme, the Milstein scheme and the Quadratic Exponential (QE) scheme to price the multiple assets American put option under the Heston stochastic volatility model. Some numerical results are presented to demonstrate the effectiveness of the proposed methods.

Suggested Citation

  • Oldouz Samimi & Farshid Mehrdoust, 2018. "Pricing multi-asset American option under Heston stochastic volatility model," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 5(03), pages 1-16, September.
    • Handle: RePEc:wsi:ijfexx:v:05:y:2018:i:03:n:s2424786318500263
    DOI: 10.1142/S2424786318500263
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    References listed on IDEAS

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    1. Longstaff, Francis A & Schwartz, Eduardo S, 2001. "Valuing American Options by Simulation: A Simple Least-Squares Approach," University of California at Los Angeles, Anderson Graduate School of Management qt43n1k4jb, Anderson Graduate School of Management, UCLA.
    2. Longstaff, Francis A & Schwartz, Eduardo S, 2001. "Valuing American Options by Simulation: A Simple Least-Squares Approach," The Review of Financial Studies, Society for Financial Studies, vol. 14(1), pages 113-147.
    3. O. Samimi & Z. Mardani & S. Sharafpour & F. Mehrdoust, 2017. "LSM Algorithm for Pricing American Option Under Heston–Hull–White’s Stochastic Volatility Model," Computational Economics, Springer;Society for Computational Economics, vol. 50(2), pages 173-187, August.
    4. Bjork, Tomas, 2009. "Arbitrage Theory in Continuous Time," OUP Catalogue, Oxford University Press, edition 3, number 9780199574742.
    5. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    6. Broadie, Mark & Glasserman, Paul, 1997. "Pricing American-style securities using simulation," Journal of Economic Dynamics and Control, Elsevier, vol. 21(8-9), pages 1323-1352, June.
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    Cited by:

    1. Duy Nguyen, 2018. "A hybrid Markov chain-tree valuation framework for stochastic volatility jump diffusion models," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 5(04), pages 1-30, December.
    2. Elettra Agliardi & Rossella Agliardi, 2023. "Pricing Multidimensional American Options," IJFS, MDPI, vol. 11(1), pages 1-10, March.

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