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Pricing of Basket Options Using Dimension Reduction and Adaptive Finite Differences in Space, and Discontinuous Galerkin in Time
KTH, School of Engineering Sciences (SCI), Mathematics (Dept.), Numerical Analysis, NA. Uppsala University, Sweden.
2016 (English)In: NUMERICAL MATHEMATICS AND ADVANCED APPLICATIONS (ENUMATH 2015) / [ed] Karasozen, B Manguoglu, M TezerSezgin, M Goktepe, S Ugur, O, SPRINGER INT PUBLISHING AG , 2016, 607-615 p.Conference paper, Published paper (Refereed)
Abstract [en]

European basket options are priced by solving the multi-dimensional Black-Scholes-Merton equation. Standard numerical methods to solve these problems often suffer from the "curse of dimensionality". We tackle this by using a dimension reduction technique based on a principal component analysis with an asymptotic expansion. Adaptive finite differences are used for the spatial discretization. In time we employ a discontinuous Galerkin scheme. The efficiency of our proposed method to solve a five-dimensional problem is demonstrated through numerical experiments and compared with a Monte-Carlo method.

Place, publisher, year, edition, pages
SPRINGER INT PUBLISHING AG , 2016. 607-615 p.
Series
Lecture Notes in Computational Science and Engineering, ISSN 1439-7358 ; 112
National Category
Mathematics
Identifiers
URN: urn:nbn:se:kth:diva-206331DOI: 10.1007/978-3-319-39929-4_58ISI: 000398020000058ISBN: 978-3-319-39929-4 (print)ISBN: 978-3-319-39927-0 (print)OAI: oai:DiVA.org:kth-206331DiVA: diva2:1093011
Conference
European Conference on Numerical Mathematics and Advanced Applications (ENUMATH), SEP 14-18, 2015, Middle E Tech Univ, Inst Appl Math, Ankara, TURKEY
Note

QC 20170504

Available from: 2017-05-04 Created: 2017-05-04 Last updated: 2017-05-04Bibliographically approved

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CiteExportLink to record
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Citation style
  • apa
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  • de-DE
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