AmerPutLSM {LSMonteCarlo}

Calculating the price of plain vanilla American put

Description

The function calculates the price of plain vanilla American put with Least Squares Monte Carlo method. The regression model included in the algorithm is quadratic polynomial (Longstaff & Schwartz, 2000).

Usage

AmerPutLSM(Spot = 1, sigma = 0.2, n = 1000, m = 365, Strike = 1.1, r = 0.06, 
dr = 0, mT = 1)

## S3 method for class 'AmerPut'
print(x, ...)
## S3 method for class 'AmerPut'
summary(object, ...)

Arguments

Spot

Spot price of the underlying asset (e.g. stock).

sigma

Volatility of the underlying asset.

n

Number of paths simulated.

m

Number of time steps in the simulation.

Strike

Strike price of the option.

r

Interest rate of the numeraire currency (e.g. EUR).

dr

Dividend rate of the underlying asset.

mT

Maturity time (years).

x

An object returned by the functions AmerPutLSM.

object

An object returned by the function AmerPutLSM.

...

Not used.

Value

The function returns an object of the class AmerPut that is a list comprising the price calculated, option type, and the entry parameters. Class-specific print function gives the option type information and the price. The price as a single number can be derived using the price function. An overview of the entire object can be seen using the summary function.

Author(s)

Mikhail A. Beketov

References

Longstaff, F.A., and E.S. Schwartz. 2000. Valuing american option by simulation: A simple least-squared approach. The Review of Financial Studies. 14:113-147.

See Also

Functions: price, AmerPutLSM_AV, AmerPutLSM_CV, AsianAmerPutLSM, and QuantoAmerPutLSM.

Examples

AmerPutLSM()
put<-AmerPutLSM(Spot=14.2, Strike=16.5, n=500, m=100)
put
summary(put)
price(put)
put$price