Applying model reference adaptive search to American-style option pricing

This paper considers the application of stochastic optimization methods to American-style option pricing. We apply a randomized optimization algorithm called Model Reference Adaptive Search (MRAS) to pricing American-style options by parameterizing the early exercise boundary. Numerical results are provided for pricing American-style call and put options written on underlying assets following geometric Brownian motion and Merton jump-diffusion processes. The results from the MRAS algorithm are also compared with the Cross-Entropy (CE) method.