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A quantization tree method for pricing and hedging multi-dimensional American options

Vlad Bally 1 Gilles Pagès Jacques Printems
1 MATHFI - Financial mathematics
Inria Paris-Rocquencourt, ENPC - École des Ponts ParisTech, UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12
Abstract : We present here the quantization method which is well-adapted for the pricing and hedging of American options on a basket of assets. Its purpose is to compute a large number of conditional expectations by projection of the diffusion on optimal grid designed to minimize the (square mean) projection error (). An algorithm to computes such grids is described. We provide results concerning the orders of the approximation with respect to the regularity of the pay-off function and the global size of the grids. Numerical tests are performed in dimensions 2, 4, 6, 10 with American style exchange options. They show that our theoretical orders are probably pessimistic.
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https://hal.inria.fr/inria-00072123
Contributor : Rapport de Recherche Inria <>
Submitted on : Tuesday, May 23, 2006 - 7:50:56 PM
Last modification on : Tuesday, December 17, 2019 - 2:14:56 AM
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  • HAL Id : inria-00072123, version 1

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Vlad Bally, Gilles Pagès, Jacques Printems. A quantization tree method for pricing and hedging multi-dimensional American options. [Research Report] RR-4465, INRIA. 2002. ⟨inria-00072123⟩

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