Description: The research investigates the challenges associated with determining a “fair value” assessment for embedded options in two product types and incorporates the process into product pricing and liability valuation

Description: This paper presents an algorithm for valuing American options in a path simulation model. It demonstrates the accuracy by an example involving a put option on a non-dividend-paying stock for which the exact premium could be determined. It shows how the use of simulation models can be useful in valuing a broker-dealer's derivative book and analyzing the asset-liability condition of financial intermediaries.