he compound real option has several characteristics such as path-dependent, multifactor situations and including flexible exercise real option. There are ``dimensional curse" in traditional option calculation method when dealing with the compound real option evaluation problem. We calculate the compound real option by American-style option Monte Carlo least squares method. Based on the adjusted compound real option formulas, simulation algorithm for the compound real option evaluation is provided by taking example for the parallel compound real option. A special situation is discussed when the exercise period of flexible exercise option and fixed exercise option overlap. Causal compound real option evaluation is also presented. Besides, other more complicated situations are considered. For example, the underlying assets follow different stochastic processes. At last, a numerical example is given to
demonstrate the calculation of compound real option by using the method proposed in the paper.
REN Peimin,ZHAO Shuran.
RESEARCH ON COMPOUND REAL OPTION SIMULATION PRICING PROBLEM BASED ON AMERICAN-STYLE OPTION SIMULATION. Journal of Systems Science and Mathematical Sciences, 2013, 33(3): 285-296 https://doi.org/10.12341/jssms12061