1 Reward approximations for autoregressive log-price processes (LPP)
In Chapter 1, we present results about space-skeleton approximations for rewards of American type options for autoregressive log-price processes with Gaussian noise terms.
These approximations are based on approximations of rewards for autoregressive log-price processes with Gaussian noise terms by the corresponding rewards for American-type options for atomic autoregressive type Markov chains, which transition probabilities and initial distributions are concentrated on finite sets of skeleton points.
The rewards for approximating atomic Markov chains can be effectively computed using backward recurrence relations presented in Chapter 3*.
The space-skeleton reward approximations ...
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