__Claremont Graduate University__ | __Claremont McKenna__ | __Harvey Mudd__ | __Pitzer__ | __Pomona__ | __Scripps__

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When

Start: 10/08/2009 - 4:15pm

End : 10/08/2009 - 5:15pm

End : 10/08/2009 - 5:15pm

Category

Statistics/OR/Math Finance Seminar

Speaker

Henry Schellhorn, CGU

Abstract

We propose a recursive scheme to calculate backward the values of

conditional expectations of functions of path values of Brownian motion.

This scheme is based on the Clark-Ocone formula in discrete time. We

construct an algorithm based on our scheme to efficiently calculate the

price of American options on securities with path-dependent payoffs. Our

algorithm can be combined with regression-based Monte Carlo methods,

like the Tsitsiklis-Van Roy algorithm. In this case, our algorithm

remedies the decrease of performance experienced by regression-based

methods when the number of basis functions, or regressands, needs to be

quite large, because of path-dependence.

In the future we plan to apply our recursive scheme to find asymptotic

solutions to non-Markovian stochastic control problems. This is joint

work with Hedley Morris.

Where

Seminar room, 3rd floor Sprague, Harvey Mudd College