New pricing method revolutionizes Bermuda swaption market, offering tighter price bounds.
The article discusses a method for pricing Bermuda-style swaptions in a complex financial model. Instead of using traditional lattice methods, the researchers propose a simple technique that combines Monte Carlo simulation with early exercise features. By directly searching for optimal exercise boundaries, they achieve fast and accurate results that outperform other pricing methods. The proposed algorithm provides a tight lower bound on Bermuda swaption prices, making it a valuable tool for financial analysis.