Optimal Exercise Times for Bermudan Options

In this paper, I explore optimal decision making around the exercising of Bermudan financial options. The decision to exercise can be modeled as a Markov Decision Process and, specifically, as an optimal stopping problem. The analytical method for solving for these optimal exercise times typically relies on simulating underlying asset prices, a process that limits the accuracy of the exercise decisions to the accuracy of the simulation process. Simulations based on the Black-Scholes pricing model, and, consequently, geometric Brownian Motion, are frequently utilized, but these methods rely on a number of assumptions that may not hold in real-world applications. My goal is to specify a method for solving for optimal exercise times that builds on previous literature while incorporating additional realism in the simulation process in order to better represent the problem space.Bachelor of Scienc