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Generally speaking, if you have two or three sources of noise, you are still going to be much better off pricing American options on a lattice than via LSMC. Too often, LSMC becomes the refuge of academics lacking patience to learn proper lattice techniques. Now, you can frequently reduce the difficulty of pricing American options by considering the ...


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Regarding your second question: one possible approach is to reduce the instrument you are trying to value to something simpler, for which an analytical solution are an alternative methodology does exist. You can then vary parameters and check that the valuation is behaving as expected. If you are using simulations because your price process is more ...


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American Options are a tricky subject and pricing them is almost never easy. A lot depends on the model etc. Assuming you that you a familiar with monte carlo and that you know the risk neutral dynamics of your porcess - you could use monte carlo least squares. The paper on the topic is easily accesible and not too technical. Suggested reading: Valuing ...


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There are several ways to choose a particular EMM. I believe that the most popular approach is to use a "distance" between $\mathbb{P}$ and $\mathbb{Q}$. Most papers use a minimal entropy approach(for example, Fujiwara and Miyahara, Esche and Schweizer, or Hubalek and Sgarra) or a relative q-entropy approach (for example, Jeanblanc, Klöppel, & Miyahara) ...


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A stochastic volatility model for a single risky asset can't be complete because you have two sources of randomness. But you can easily make it complete by adding a derivative whose value depends on the volatility. For example, if you add a variance swap in the Heston model then it becomes complete. This allows you to calibrate the model. But your ...



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