Questions tagged [longstaff-schwartz]
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Continuation value in Longstaff-Schwartz: Why the expected value?
In the paper by Longstaff and Schwartz on American option pricing, the continuation value at time $t_k$ is given by:
\begin{align}
F(\omega;t_k) = \mathbb{E}_Q\Big[\sum_{j=k+1}^Kexp\Big(-\int_{t_k}^{...
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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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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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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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LSMC for Out of The Money paths
In the Longstaff & Schawartz article they condition on using In-The-Money (ITM) paths only for the regression. The reason for this is to obtain more accurate results and also reduce the ...
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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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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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