A Simplified Quadrature Approach for Computing Bermudan Option Prices

摘要

We examine a simple quadrature approach to compute the prices of Bermudan options when the value of the corresponding European claim can be computed in closed form, one period before maturity. Using a constant grid of stock prices at early exercise time points, the known value of the European option is used as a smoothing device to enable efficient numerical integ ration with quadrature approaches. Examples with the geometric Brownian motion context and the lognormal jump-diffusion context are p