The Mathematical Institute, University of Oxford, Eprints Archive

Efficient hierarchical approximation of high-dimensional option pricing problems

Reisinger, Christoph and Wittum, Gabriel (2005) Efficient hierarchical approximation of high-dimensional option pricing problems. SIAM Journal on Scientific Computing . (Submitted)

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Abstract

A major challenge in computational finance is the pricing of options that depend on a large number of risk factors. Prominent examples are basket or index options where dozens or even hundreds of stocks constitute the underlying asset and determine the dimensionality of the corresponding degenerate parabolic equation. The objective of this article is to show how an efficient discretisation can be achieved by hierarchical approximation as well as asymptotic expansions of the underlying continuous problem. The relation to a number of state-of-the-art methods is highlighted.

Item Type:Article
Subjects:O - Z > Partial differential equations
H - N > Numerical analysis
Research Groups:Oxford Centre for Industrial and Applied Mathematics
Mathematical and Computational Finance Group
ID Code:242
Deposited By:Christoph Reisinger
Deposited On:30 Jun 2006
Last Modified:20 Jul 2009 14:19

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