Universität zu Köln

Weiss, Christian and Nikolic, Zoran (2019). An aspect of optimal regression design for LSMC. Monte Carlo Methods Appl., 25 (4). S. 283 - 291. BERLIN: WALTER DE GRUYTER GMBH. ISSN 0929-9629

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Abstract

Practitioners sometimes suggest to use a combination of Sobol sequences and orthonormal polynomials when applying an LSMC algorithm for evaluation of option prices or in the context of risk capital calculation under the Solvency II regime. In this paper, we give a theoretical justificationwhy good implementations of an LSMC algorithm should indeed combine these two features in order to assure numerical stability. Moreover, an explicit bound for the number of outer scenarios necessary to guarantee a prescribed degree of numerical stability is derived. We embed our observations into a coherent presentation of the theoretical background of LSMC in the insurance setting.

Item Type:	Journal Article
Creators:	Creators Email ORCID ORCID Put Code Weiss, Christian UNSPECIFIED UNSPECIFIED UNSPECIFIED Nikolic, Zoran UNSPECIFIED UNSPECIFIED UNSPECIFIED
URN:	urn:nbn:de:hbz:38-126287
DOI:	10.1515/mcma-2019-2049
Journal or Publication Title:	Monte Carlo Methods Appl.
Volume:	25
Number:	4
Page Range:	S. 283 - 291
Date:	2019
Publisher:	WALTER DE GRUYTER GMBH
Place of Publication:	BERLIN
ISSN:	0929-9629
Language:	English
Faculty:	Unspecified
Divisions:	Unspecified
Subjects:	no entry
Uncontrolled Keywords:	Keywords Language SIMULATION; OPTIONS Multiple languages Statistics & Probability Multiple languages
Refereed:	Yes
URI:	http://kups.ub.uni-koeln.de/id/eprint/12628