Browsing by Author "Gravet, Miguel"

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    The valuation of multidimensional American real options using the LSM simulation method
    (PERGAMON-ELSEVIER SCIENCE LTD, 2008) Cortazar, Gonzalo; Gravet, Miguel; Urzua, Jorge
    In this paper we show how a multidimensional American real option may be solved using the LSM simulation method originally proposed by Longstaff and Schwartz [2001, The Review of the Financial Studies 14(1): 113-147] for valuing a financial option and how this method can be used in a complex setting. We extend a well-known natural resource real option model, initially solved using finite difference methods, to include a more realistic three-factor stochastic process for commodity prices, more in line with current research. Numerical results show that the procedure may be successfully used for multidimensional models, expanding the applicability of the real options approach.