Simulations for American option pricing under a jump-diffusion model: Comparison study between kernel-based and regression-based methods

Hyun Joo Lee; Seung Ho Yang; Gyu Sik Han; Jaewook Lee

doi:10.1007/978-3-540-87732-5_73

Simulations for American option pricing under a jump-diffusion model: Comparison study between kernel-based and regression-based methods

Hyun Joo Lee^*
, Seung Ho Yang
, Gyu Sik Han
, Jaewook Lee

^*Corresponding author for this work

Department of Business Administration

Pohang University of Science and Technology

Research output: Contribution to conference › Conference paper › peer-review

Abstract

There is no exact analytic formula for valuing American option even in the diffusion model because of its early exercise feature. Recently, Monte Carlo simulation (MCS) methods are successfully applied to American option pricing, especially under diffusion models. They include regression-based methods and kernel-based methods. In this paper, we conduct a performance comparison study between the kernel-based MCS methods and the regression-based MCS methods under a jump-diffusion model.

Original language	English
Title of host publication	Advances in Neural Networks - ISNN 2008 - 5th International Symposium on Neural Networks, ISNN 2008, Proceedings
Publisher	Springer Verlag
Pages	655-662
Number of pages	8
Edition	PART 1
ISBN (Print)	3540877312, 9783540877318
DOIs	https://doi.org/10.1007/978-3-540-87732-5_73
State	Published - 2008
Event	5th International Symposium on Neural Networks, ISNN 2008 - Beijing, China Duration: 2008.09.24 → 2008.09.28

Publication series

Name	Lecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics)
Number	PART 1
Volume	5263 LNCS
ISSN (Print)	0302-9743
ISSN (Electronic)	1611-3349

Conference

Conference	5th International Symposium on Neural Networks, ISNN 2008
Country/Territory	China
City	Beijing
Period	08.09.24 → 08.09.28

Keywords

American option
Jump-diffusion model
Kernel-based regression

Access to Document

10.1007/978-3-540-87732-5_73

Cite this

Lee, H. J., Yang, S. H., Han, G. S., & Lee, J. (2008). Simulations for American option pricing under a jump-diffusion model: Comparison study between kernel-based and regression-based methods. In Advances in Neural Networks - ISNN 2008 - 5th International Symposium on Neural Networks, ISNN 2008, Proceedings (PART 1 ed., pp. 655-662). (Lecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics); Vol. 5263 LNCS, No. PART 1). Springer Verlag. https://doi.org/10.1007/978-3-540-87732-5_73

Lee, Hyun Joo ; Yang, Seung Ho ; Han, Gyu Sik et al. / Simulations for American option pricing under a jump-diffusion model : Comparison study between kernel-based and regression-based methods. Advances in Neural Networks - ISNN 2008 - 5th International Symposium on Neural Networks, ISNN 2008, Proceedings. PART 1. ed. Springer Verlag, 2008. pp. 655-662 (Lecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics); PART 1).

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abstract = "There is no exact analytic formula for valuing American option even in the diffusion model because of its early exercise feature. Recently, Monte Carlo simulation (MCS) methods are successfully applied to American option pricing, especially under diffusion models. They include regression-based methods and kernel-based methods. In this paper, we conduct a performance comparison study between the kernel-based MCS methods and the regression-based MCS methods under a jump-diffusion model.",

keywords = "American option, Jump-diffusion model, Kernel-based regression",

author = "Lee, \{Hyun Joo\} and Yang, \{Seung Ho\} and Han, \{Gyu Sik\} and Jaewook Lee",

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booktitle = "Advances in Neural Networks - ISNN 2008 - 5th International Symposium on Neural Networks, ISNN 2008, Proceedings",

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Lee, HJ, Yang, SH, Han, GS & Lee, J 2008, Simulations for American option pricing under a jump-diffusion model: Comparison study between kernel-based and regression-based methods. in Advances in Neural Networks - ISNN 2008 - 5th International Symposium on Neural Networks, ISNN 2008, Proceedings. PART 1 edn, Lecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics), no. PART 1, vol. 5263 LNCS, Springer Verlag, pp. 655-662, 5th International Symposium on Neural Networks, ISNN 2008, Beijing, China, 08.09.24. https://doi.org/10.1007/978-3-540-87732-5_73

Simulations for American option pricing under a jump-diffusion model: Comparison study between kernel-based and regression-based methods. / Lee, Hyun Joo; Yang, Seung Ho; Han, Gyu Sik et al.
Advances in Neural Networks - ISNN 2008 - 5th International Symposium on Neural Networks, ISNN 2008, Proceedings. PART 1. ed. Springer Verlag, 2008. p. 655-662 (Lecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics); Vol. 5263 LNCS, No. PART 1).

Research output: Contribution to conference › Conference paper › peer-review

TY - GEN

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AU - Han, Gyu Sik

AU - Lee, Jaewook

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N2 - There is no exact analytic formula for valuing American option even in the diffusion model because of its early exercise feature. Recently, Monte Carlo simulation (MCS) methods are successfully applied to American option pricing, especially under diffusion models. They include regression-based methods and kernel-based methods. In this paper, we conduct a performance comparison study between the kernel-based MCS methods and the regression-based MCS methods under a jump-diffusion model.

AB - There is no exact analytic formula for valuing American option even in the diffusion model because of its early exercise feature. Recently, Monte Carlo simulation (MCS) methods are successfully applied to American option pricing, especially under diffusion models. They include regression-based methods and kernel-based methods. In this paper, we conduct a performance comparison study between the kernel-based MCS methods and the regression-based MCS methods under a jump-diffusion model.

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KW - Jump-diffusion model

KW - Kernel-based regression

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DO - 10.1007/978-3-540-87732-5_73

M3 - Conference paper

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SN - 9783540877318

T3 - Lecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics)

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Lee HJ, Yang SH, Han GS, Lee J. Simulations for American option pricing under a jump-diffusion model: Comparison study between kernel-based and regression-based methods. In Advances in Neural Networks - ISNN 2008 - 5th International Symposium on Neural Networks, ISNN 2008, Proceedings. PART 1 ed. Springer Verlag. 2008. p. 655-662. (Lecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics); PART 1). doi: 10.1007/978-3-540-87732-5_73

Simulations for American option pricing under a jump-diffusion model: Comparison study between kernel-based and regression-based methods

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