IDEAS home Printed from https://ideas.repec.org/p/ags/huiawp/18823.html
   My bibliography  Save this paper

Bounded Recursive Stochastic Simulation - A Simple and Efficient Method for Pricing Complex American Type Options

Author

Listed:
  • Musshoff, Oliver
  • Hirschauer, Norbert
  • Palmer, Ken

Abstract

This paper gives an overview of simulation based procedures, which have proved to be efficient in valuing American options and therefore real options. Many of them integrate sequential stochastic simulations in the backward recursive programming approach to determine the early-exercise frontier. They subsequently value the option by initiating a Monte-Carlo simulation from the valuation date of the option. It turns out that one approach (Grant et al., 1997) is especially simple. We are able to enhance its efficiency by stripping it of some time consuming but unnecessary simulation steps. Our simplified approach could be called "Bounded Recursive Stochastic Simulation".

Suggested Citation

  • Musshoff, Oliver & Hirschauer, Norbert & Palmer, Ken, 2002. "Bounded Recursive Stochastic Simulation - A Simple and Efficient Method for Pricing Complex American Type Options," Working Paper Series 18823, Humboldt University Berlin, Department of Agricultural Economics.
    • Handle: RePEc:ags:huiawp:18823
    DOI: 10.22004/ag.econ.18823
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/18823/files/wp020065.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.18823?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Odening, Martin & Hinrichs, Jan, 2003. "Die Quantifizierung von Marktrisiken in der Tierproduktion mittels Value-at-Risk und Extreme-Value-Theory," German Journal of Agricultural Economics, Humboldt-Universitaet zu Berlin, Department for Agricultural Economics, vol. 52(02), pages 1-11.
    2. Odening, Martin, 2000. "Der Optionswert von Sachinvestitionen - Theoretischer Hintergrund und Bewertungsmethoden," Working Paper Series 18828, Humboldt University Berlin, Department of Agricultural Economics.
    3. Lissitsa, Alexej & Odening, Martin, 2001. "Effizienz und totale Faktor-produktivitat in der ukrainischen Landwirtschaft im Transformationsprozess," Working Paper Series 7391, Humboldt University Berlin, Department of Agricultural Economics.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Philipp N. Baecker, 2007. "Real Options and Intellectual Property," Lecture Notes in Economics and Mathematical Systems, Springer, number 978-3-540-48264-2, July.
    2. Grethe, Harald, 2005. "Turkey’s accession to the EU: what will the Common Agricultural Policy cost?," German Journal of Agricultural Economics, Humboldt-Universitaet zu Berlin, Department for Agricultural Economics, vol. 54(02), pages 1-10.
    3. Badri, Balghis & Knuth, Hardine, 2008. "The Engendered Spaces in the Village at the Edge of the Capital: A Case Study of Al Gharaza/Sudan," Working Paper Series 43095, Humboldt University Berlin, Department of Agricultural Economics.
    4. Nolte, Stephan, 2006. "The application of spatial models in the analysis of bilateral trade flows: An alternative to the Armington approach for the world sugar market," Working Paper Series 10288, Humboldt University Berlin, Department of Agricultural Economics.
    5. von Witzke, Harald & Kirschke, Dieter & Lotze-Campen, Hermann & Noleppa, Steffen, 2005. "The Economics of Alternative Strategies for the Reduction of Food-borne Diseases in Developing Countries: The Case of Diarrhea in Rwanda," Working Paper Series 18830, Humboldt University Berlin, Department of Agricultural Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nolte, Stephan, 2006. "The application of spatial models in the analysis of bilateral trade flows: An alternative to the Armington approach for the world sugar market," Working Paper Series 10288, Humboldt University Berlin, Department of Agricultural Economics.
    2. von Witzke, Harald & Kirschke, Dieter & Lotze-Campen, Hermann & Noleppa, Steffen, 2005. "The Economics of Alternative Strategies for the Reduction of Food-borne Diseases in Developing Countries: The Case of Diarrhea in Rwanda," Working Paper Series 18830, Humboldt University Berlin, Department of Agricultural Economics.
    3. Zorya, Sergiy & von Cramon-Taubadel, Stephan, 2002. "When Will Ukraine be a Global Player on World Agricultural Markets?," 2002 International Congress, August 28-31, 2002, Zaragoza, Spain 24912, European Association of Agricultural Economists.
    4. Grethe, Harald, 2005. "Turkey’s accession to the EU: what will the Common Agricultural Policy cost?," German Journal of Agricultural Economics, Humboldt-Universitaet zu Berlin, Department for Agricultural Economics, vol. 54(02), pages 1-10.
    5. Francksen, Tammo & Latacz-Lohmann, Uwe, 2006. "Beurteilung der technischen Effizienz der Agrarsektoren der EU-Beitrittsländer anhand parametrischer und nichtparametrischer Analyseverfahren," German Journal of Agricultural Economics, Humboldt-Universitaet zu Berlin, Department for Agricultural Economics, vol. 55(07), pages 1-11.
    6. Badri, Balghis & Knuth, Hardine, 2008. "The Engendered Spaces in the Village at the Edge of the Capital: A Case Study of Al Gharaza/Sudan," Working Paper Series 43095, Humboldt University Berlin, Department of Agricultural Economics.
    7. Chemnitz, Christine & Grethe, Harald & Kleinwechter, Ulrich, 2007. "Quality Standards for Food Products - A Particular Burden for Small Producers in Developing Countries?," 106th Seminar, October 25-27, 2007, Montpellier, France 7926, European Association of Agricultural Economists.
    8. von Hobe, Cord-Friedrich & Michels, Marius & Musshoff, Oliver, 2021. "Technical efficiency and productivity change in German large-scale arable farming," German Journal of Agricultural Economics, Humboldt-Universitaet zu Berlin, Department for Agricultural Economics, vol. 70(01), January.
    9. Odening, Martin & Musshoff, Oliver, 2001. "Reale Optionen und Landwirtschaftliche Betriebslehre – oder: Kann man mit der Optionspreistheorie arbitrieren?," German Journal of Agricultural Economics, Humboldt-Universitaet zu Berlin, Department for Agricultural Economics, vol. 50(08), pages 1-10.

    More about this item

    Keywords

    Research Methods/ Statistical Methods;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:huiawp:18823. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/iahubde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.