Monte Carlo Bounds for Game Options Including Convertible Bonds
Christopher Beveridge, Mark Joshi
Management Science · 2011 · Volume 57 · Issue 5
Abstract
We introduce two new methods to calculate bounds for zero-sum game options using Monte Carlo simulation. These extend and generalize upper-bound duality results to the case where both parties of a contract have Bermudan optionality. It is shown that the primal-dual simulation method can still be used as a generic way to obtain bounds in the extended framework, and we apply the new results to the pricing of convertible bonds by simulation. This paper was accepted by Wei Xiong, finance.
Keywords
finance, asset pricing, games-group decisions, stochastic, probability, stochastic model applications, Monte Carlo simulation, Bermudan optionality
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