A front-fixing ETD numerical method for solving jump-diffusion American option pricing problems
[EN] American options prices under jump-diffusion models are determined by a free boundary partial integro-differential equation (PIDE) problem. In this paper, we propose a front-fixing exponential time differencing (FF-ETD) method composed of several steps. First, the free boundary is included into...
| Autores: | ; ; |
|---|---|
| Tipo de documento: | Artículo |
| Fecha de publicación: | 2021 |
| País: | España |
| Institución: | Universitat Politècnica de València (UPV) |
| Repositorio: | RiuNet. Repositorio Institucional de la Universitat Politécnica de Valéncia |
| Lenguaje: | Inglés |
| OAI Identifier: | oai:riunet.upv.es:10251/179436 |
| Acceso en línea: | https://riunet.upv.es/handle/10251/179436 |
| Nivel de acceso: | Acceso abierto |
| Palabra clave: | American option pricing Front-fixing method Exponential time differencing Finite difference methods Experimental numerical analysis Gauss quadrature MATEMATICA APLICADA |
| _version_ | 1878734739330826240 |
|---|---|
| author | Company Rossi, Rafael|||0000-0001-5217-1889 |
| author2 | Jódar Sánchez, Lucas Antonio|||0000-0002-9672-6249 Egorova, Vera N. |
| author2_role | author author |
| author_browse | Company Rossi, Rafael|||0000-0001-5217-1889 Egorova, Vera N. Jódar Sánchez, Lucas Antonio|||0000-0002-9672-6249 |
| author_facet | Company Rossi, Rafael|||0000-0001-5217-1889 Jódar Sánchez, Lucas Antonio|||0000-0002-9672-6249 Egorova, Vera N. |
| author_role | author |
| collection | RiuNet. Repositorio Institucional de la Universitat Politécnica de Valéncia |
| description | [EN] American options prices under jump-diffusion models are determined by a free boundary partial integro-differential equation (PIDE) problem. In this paper, we propose a front-fixing exponential time differencing (FF-ETD) method composed of several steps. First, the free boundary is included into equation by applying the front-fixing transformation. Second, the resulting nonlinear PIDE is semi-discretized, that leads to a system of ordinary differential equations (ODEs). Third, a numerical solution of the system is constructed by using exponential time differencing (ETD) method and matrix quadrature rules. Finally, numerical analysis is provided to establish empirical stability conditions on step sizes. Numerical results show the efficiency and competitiveness of the FF-ETD method. (C) 2020 International Association for Mathematics and Computers in Simulation (IMACS). Published by Elsevier B.V. All rights reserved. |
| eu_rights_str_mv | openAccess |
| format | article |
| id | ES_6f04a6e14760cd3de7d17d40f6e8cec9 |
| institution | Universitat Politècnica de València (UPV) |
| instname_str | Universitat Politècnica de València (UPV) |
| language | eng |
| network_acronym_str | ES |
| network_name_str | España |
| oai_identifier_str | oai:riunet.upv.es:10251/179436 |
| publishDate | 2021 |
| publishDateSort | 2021 |
| publisher | Elsevier |
| publisherStr | Elsevier |
| reponame_str | RiuNet. Repositorio Institucional de la Universitat Politécnica de Valéncia |
| spelling | A front-fixing ETD numerical method for solving jump-diffusion American option pricing problems Company Rossi, Rafael|||0000-0001-5217-1889 Jódar Sánchez, Lucas Antonio|||0000-0002-9672-6249 Egorova, Vera N. American option pricing Front-fixing method Exponential time differencing Finite difference methods Experimental numerical analysis Gauss quadrature MATEMATICA APLICADA [EN] American options prices under jump-diffusion models are determined by a free boundary partial integro-differential equation (PIDE) problem. In this paper, we propose a front-fixing exponential time differencing (FF-ETD) method composed of several steps. First, the free boundary is included into equation by applying the front-fixing transformation. Second, the resulting nonlinear PIDE is semi-discretized, that leads to a system of ordinary differential equations (ODEs). Third, a numerical solution of the system is constructed by using exponential time differencing (ETD) method and matrix quadrature rules. Finally, numerical analysis is provided to establish empirical stability conditions on step sizes. Numerical results show the efficiency and competitiveness of the FF-ETD method. (C) 2020 International Association for Mathematics and Computers in Simulation (IMACS). Published by Elsevier B.V. All rights reserved. This work has been partially supported by the Ministerio de Ciencia, Innovacion y Universidades, Spanish grant MTM2017-89664-P Elsevier https://riunet.upv.es/handle/10251/179436 |
| spellingShingle | A front-fixing ETD numerical method for solving jump-diffusion American option pricing problems Company Rossi, Rafael|||0000-0001-5217-1889 American option pricing Front-fixing method Exponential time differencing Finite difference methods Experimental numerical analysis Gauss quadrature MATEMATICA APLICADA |
| title | A front-fixing ETD numerical method for solving jump-diffusion American option pricing problems |
| title_full | A front-fixing ETD numerical method for solving jump-diffusion American option pricing problems |
| title_fullStr | A front-fixing ETD numerical method for solving jump-diffusion American option pricing problems |
| title_full_unstemmed | A front-fixing ETD numerical method for solving jump-diffusion American option pricing problems |
| title_short | A front-fixing ETD numerical method for solving jump-diffusion American option pricing problems |
| title_sort | A front-fixing ETD numerical method for solving jump-diffusion American option pricing problems |
| topic | American option pricing Front-fixing method Exponential time differencing Finite difference methods Experimental numerical analysis Gauss quadrature MATEMATICA APLICADA |
| topic_facet | American option pricing Front-fixing method Exponential time differencing Finite difference methods Experimental numerical analysis Gauss quadrature MATEMATICA APLICADA |
| url | https://riunet.upv.es/handle/10251/179436 |