A survey of simulation-based methods for pricing complex American type options

This paper gives an overview of simulation-based methods which have been developed for the valuation of “complex” American type options that cannot be valued analytically. The authors focus on one especially promising approach which we call “bounded recursive stochastic simulation” (BRSS) after having stripped off some time consuming but dispensable working steps. Then, we test the BRSS-approach by comparing it with three other simulation-based methods. Because of its superiority with regard to accuracy, computational costs, and flexibility, the paper describes the BRSS-approach in detail, thus, providing scientific know-how for efficient numerical option pricing.

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