Least squares Monte Carlo (LSM) is an approximate dynamic programming (ADP) technique commonly used for the valuation of high dimensional financial and real options, but has broader applicability. It is known that the regress-later version of this method is an approximate linear programming...

This paper presents a practical volatility estimation method for cash flow simulation based real option valuation with changing volatility. During cash flow simulation, present value of the future cash flows and their corresponding cash flow state variable values are recorded for all time...

This paper investigates the effect of uncertainty about input parameters on the accuracy of real option valuation. It compares the error from no-arbitrage valuation with the error from using DCF. Despite the theoretical superiority of no-arbitrage valuation it is shown to be less accurate than...

This paper demonstrates that it is possible to improve significantly on the estimated call prices obtained with the regression and simulation-based least-squares Monte Carlo method by using put-call symmetry. The results show that, for a large sample of options with characteristics of relevance...