Valuing American Options by Simulation: A Simple Least-Squares Approach

@article{Longstaff2001ValuingAO,
  title={Valuing American Options by Simulation: A Simple Least-Squares Approach},
  author={F. Longstaff and Eduardo S. Schwartz},
  journal={The Finance},
  year={2001}
}
This article presents a simple yet powerful new approach for approximating the value of American options by simulation. The key to this approach is the use of least squares to estimate the conditional expected payoff to the optionholder from continuation. This makes this approach readily applicable in path-dependent and multifactor situations where traditional finite difference techniqes cannot be used. We illustrate this technique with several realistic examples including valuing an option… Expand

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