Questions tagged [longstaff-schwartz]
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Suboptimality bias in least squares Monte Carlo for American options
In Monte Carlo pricing of American options we form two estimators:
A high estimator that is biased upward because of "look-ahead" bias (i.e., at any given time we uses future information to ...
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LSM Python Implementation Undervaluation Problem
I am trying to implement the LSM method in Python. My implementation leads to American put prices lower than those as reported in Table 1 of the Longstaff-Schwartz paper and in some cases they are ...
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133 views
Least Square Monte Carlo Longstaff-Schwartz method implementation problem
While trying to implement the Least Square Monte Carlo (LSMC) method by Longstaff-Schwartz I came across an error I am not quite sure how to fix.
The method uses a regression method (be it Multiple ...
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Longstaff and Schwartz example in their paper
I was looking at the well known Longstaff and Schwartz paper "Valuing American Options by Simulation: A Simple Least-Squares Approach". There are a couple of examples where they applied the ...
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91 views
Longstaff-Schwartz for any optimal stopping
Let's say I have the stock of General Motors and I assume some fancy model for the price of this stock and I have to sell it within a month. Can I use Longstaff-Schwartz algorithm to determine the ...
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Longstaff Schwartz method (LSM): how to increase accuracy?
In the LSM method, I am currently (as they do in the paper) using weighted Laguerre polynomials as basis functions, about 3-5 of them.
If I wish to increase the accuracy of my model, what should I do?...
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1answer
126 views
L2 Assumptions of the Longstaff Schwartz method
In page 121 of the original LS Paper they use the fact that the space of functions they are dealing with (payoffs of American options), belong to the $\mathcal L^2$ space.
They use this assumption ...
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21 views
Longstaff Schwartz with future conditional coupons
I've implemented the L-S algorithm for a simple put option. I want to value a more complex derivative which has future conditional coupons which only occur if the option is in the money. How would I ...
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1answer
501 views
Longstaff Schwartz algorithm
I am new in finance, I have implemented the Longstaff Schwartz algorithm for pricing american otion - one asset (dimension = 1).
My questions :
Does this algorithm still efficient for a high ...
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1k views
Longstaff-Schwartz, special american option simulation using Python (numpy package)
I got a put option, which can be exercised 3 times, all at different times, which are each month of a year $$t_1 = \frac{1}{12}, t_2 = \frac{2}{12} ... t_{12} = 1$$.
Respectively, if exercised at $$...
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2answers
658 views
Foresight bias in least square monte carlo
Foresight bias means we tend to over estimate the American option value. This we observe in other areas of statistics - e.g. in sample test almost always gives better prediction than out of sample ...
