Empirical Pricing American Put Options

In this chapter, we study the empirical-pricing of American options. The pricing of American options is an optimal stopping problem, which can be derived from a backward recursion such that, in each step of the recursion, one needs conditional expectations. For empirical-pricing, [Longstaff and Schwartz (2001)] suggested replacing the conditional expectations by regression function estimates. We survey the current literature and the main techniques of nonparametric regression estimates, and derive new empirical-pricing algorithms.