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arxiv: 1404.7438 · v3 · pith:HC3FT2AOnew · submitted 2014-04-07 · 💱 q-fin.CP · math.NA· math.PR

The least squares method for option pricing revisited

classification 💱 q-fin.CP math.NAmath.PR
keywords methodevenleastoptionpricingregressionsquaresapplications
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It is shown that the the popular least squares method of option pricing converges even under very general assumptions. This substantially increases the freedom of creating different implementations of the method, with varying levels of computational complexity and flexible approach to regression. It is also argued that in many practical applications even modest non-linear extensions of standard regression may produce satisfactory results. This claim is illustrated with examples.

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