The least squares method for option pricing revisited
Volume 45 / 2018
Applicationes Mathematicae 45 (2018), 5-29
MSC: Primary 91G20, 91G60, 93E24; Secondary 60G40, 62J02.
DOI: 10.4064/am2354-2-2018
Published online: 21 May 2018
Abstract
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.
