  The least squares Monte Carlo (LSM) algorithm proposed by Longstaff and
Schwartz (2001) is widely used for pricing Bermudan options. The LSM estimator
contains undesirable look-ahead bias, and the conventional technique of
avoiding it requires additional simulation paths. We present the leave-one-out
LSM (LOOLSM) algorithm to eliminate look-ahead bias without doubling
simulations. We also show that look-ahead bias is asymptotically proportional
to the regressors-to-paths ratio. Our findings are demonstrated with several
option examples in which the LSM algorithm overvalues the options. The LOOLSM
method can be extended to other regression-based algorithms that improve the
LSM method.
