Pricing and Hedging American Options Using Monte Carlo Simulation
Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesis
This thesis is devoted to pricing and hedging of American style op- tions by the use of Monte Carlo simulation. We describe and implement numerous methods, developed for pricing American options by simula- tion. We show how Monte Carlo simulation can be used to achieve a plausible, and accurate, price approximation and illustrate this by nu- merical results. Both single asset, and multiple asset, contract structures have been applied to these methods. This study points out the strengths, and weaknesses, of Monte Carlo simulation when using it for pricing an American style option. Finally, we use Monte Carlo simulation to esti- mate the hedge ratios of American options and the result is illustrated in tables.
Place, publisher, year, edition, pages
2007. , 39 p.
IdentifiersURN: urn:nbn:se:umu:diva-51320OAI: oai:DiVA.org:umu-51320DiVA: diva2:479015
UppsokPhysics, Chemistry, Mathematics