Using Least square monte carlo simulation to price American multi underlying stock option

Using Least square monte carlo simulation to price American multi underlying stock option

Author		: IRMA PALUPI; INDRA UTAMA SITORUS; RIAN FEBRIAN UMBARA 
Published on	: International Conference On Information and Communication Technology (ICoICT))

Abstract

“Stock options is a contract which give the right (without obligation) to the owner to buy or to sell stock asset at certain price during specified time period. Stock option is derivate product of stock, created to hedge and speculate. This research use Least-Square Monte Carlo (LSM) method to estimate American put option price. Firstly, LSM method is applied to determine single asset of American put option price and its optimal exercise boundary. According to parameter volatility, the computation result using implied volatility approach market value better than using estimated volatility from historical data. In determining the value of multiple assets put option, it is used the similar algorithm scheme as single asset put option. The comparison result of multi asset option price either using implied volatility and estimated volatility from historical data, does not give a significant differences. Also, this research observe the sensitivity of option price in changing volatility.”