An irregular grid approach for pricing high-dimensional American options

JOURNAL OF COMPUTATIONAL AND APPLIED MATHEMATICS

卷:222

Article

Berridge, S. J.¹  Schumacher, J. M.^2,3 

[1] Man Investments, Sugar Quay, London EC3R 6DU, England

[2] Tilburg Univ, Dept Econometr & Operat Res, NL-5000 LE Tilburg, Netherlands

[3] Tilburg Univ, Ctr Econ Res CentER, NL-5000 LE Tilburg, Netherlands

关键词: American options;    High-dimensional problems;    Free boundary problems;    Optimal stopping;    Variational inequalities;    Numerical methods;    Unstructured mesh;    Markov chain approximation;   

DOI  :  10.1016/j.cam.2007.10.045

来源: Elsevier

【 摘 要 】

We propose and test a new method for pricing American options in a high-dimensional setting. The method is centered around the approximation of the associated complementarity problem on an irregular grid. We approximate the partial differential operator on this grid by appealing to the SIDE representation of the underlying process and computing the root of the transition probability matrix of an approximating Markov chain. Experimental results in five-dimensions are presented for four different payoff functions. (C) 2007 Elsevier B.V. All rights reserved.

【 授权许可】

Free