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Backward induction for future values

A new framework for derivatives pricing with valuation adjustments

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  • Alexandre Antonov, Serguei Issakov and Serguei Mechkov
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The American (or least squares) Monte Carlo method in its original formulation (see, for example, Carriere 1996; Longstaff & Schwartz 2001; and see also Glasserman (2003) for a more complete list of references) uses a backward induction to compute the continuation value of a derivative. In this article we generalise the backward induction to compute a future value of a derivative that corresponds to the full instrument value on future dates with effectsof

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