Policy iteration for American/Bermudan style derivatives
by
Schoenmakers, John
Weierstrass Institute
Coauthors: C. Bender, A. Kolodko

Effective valuation procedures for high-dimensional American/Bermudan derivatives are considered a thorny problem. In particular standard (e.g. regression) methods reveal limitations in many-dimensional and path-dependent problems. In this talk we recapitulate a recent alternative methodology based on policy iteration. By a popular example, the cancellable snowball, we show that allying this new methodology with industrial standard ones may fill the final gap.

Date received: April 10, 2007