Economy – Quantitative Finance – Pricing of Securities

Scientific paper

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2010-11-16

Economy

Quantitative Finance

Pricing of Securities

Scientific paper

We propose a method for pricing American options whose pay-off depends on the moving average of the underlying asset price. The method uses a finite dimensional approximation of the infinite-dimensional dynamics of the moving average process based on a truncated Laguerre series expansion. The resulting problem is a finite-dimensional optimal stopping problem, which we propose to solve with a least squares Monte Carlo approach. We analyze the theoretical convergence rate of our method and present numerical results in the Black-Scholes framework.

**Bernhart Marie**

Economy – Quantitative Finance – Computational Finance

Scientist

**Tankov Peter**

Mathematics – Probability

Scientist

**Warin Xavier**

Mathematics – Probability

Scientist

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