The valuation of multidimensional American real options using the LSM simulation method

@article{Cortazar2008TheVO,
  title={The valuation of multidimensional American real options using the LSM simulation method},
  author={Gonzalo Cortazar and Miguel Gravet and Jorge Urz{\'u}a},
  journal={Computers & OR},
  year={2008},
  volume={35},
  pages={113-129}
}
In this paper we show how a multidimensional American real option may be solved using the LSM simulation method originally proposed by Longstaff and Schwartz [2001, The Review of the Financial Studies 14(1): 113–147] for valuing a financial option and how this method can be used in a complex setting. We extend a well-known natural resource real option model, initially solved using finite difference methods, to include a more realistic three-factor stochastic process for commodity prices, more… CONTINUE READING
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