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The least squares method for option pricing revisited

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  • Maciej Klimek
  • Marcin Pitera

Abstract

It is shown that the the popular least squares method of option pricing converges even under very general assumptions. This substantially increases the freedom of creating different implementations of the method, with varying levels of computational complexity and flexible approach to regression. It is also argued that in many practical applications even modest non-linear extensions of standard regression may produce satisfactory results. This claim is illustrated with examples.

Suggested Citation

  • Maciej Klimek & Marcin Pitera, 2014. "The least squares method for option pricing revisited," Papers 1404.7438, arXiv.org, revised Nov 2015.
    • Handle: RePEc:arx:papers:1404.7438
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    References listed on IDEAS

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