A FAST MONTE CARLO ALGORITHM FOR PRICING AMERICAN OPTIONS

Abstract

An explicit relationship between these parameters and the running time of the algorithm is also provided. The algorithm belongs, then, to the class of Fully Polynomial Randomized. Approximation Scheme for American Options which is defined here and proposed as a criteria for establishing the efficiency of such an algorithm. This is the first algorithm for pricing several American options that provides an explicit relationship between the presicion desired and the running time, and that is not exponential in the number of stopping times. It can be applied to American puts, American calls and Puts that pay dividends, and to several barrier and lookback options.