This paper introduces a Monte Carlo simulation method for pricing multidimensional American options based on the computation of the optimal exercise frontier. We consider Bermudan options that can be exercised at a finite number of times and compute the optimal exercise frontier recursively. We...

Consider a non-spanned security C_{T} in an incomplete market. We study the risk/return trade-offs generated if this security is sold for an arbitrage-free price Câ‚€ and then hedged. We consider recursive "one-period optimal" self-financing hedging strategies, a simple but tractable...

In a standard option-pricing model, with continuous-trading and diffusion processes, this paper shows that the price of one European-style option can be factorized into two intuitive components: One robust, X0, which is priced by arbitrage, and a second, [Pi]0, which depends on a risk orthogonal...