An irregular grid method for high-dimensional free-boundary problems in finance

被引：6
|
作者：
Berridge, S
Schumacher, JM
机构：
[1] Tilburg Univ, Dept Econometr & Operat Res, NL-5000 LE Tilburg, Netherlands
[2] Tilburg Univ, CentER, NL-5000 LE Tilburg, Netherlands
来源：
FUTURE GENERATION COMPUTER SYSTEMS | 2004年 / 20卷 / 03期
关键词：
American options; high-dimensional problems; free-boundary problems; optimal stopping; variational inequalities; numerical methods;
D O I：
10.1016/j.future.2003.07.002
中图分类号：
TP301 [理论、方法];
学科分类号：
081202 ;
摘要：
We propose and test a new method for pricing American options in a high-dimensional setting. The method is centred around the approximation of the associated variational inequality on an irregular grid. We approximate the effect of the partial differential operator on this grid by appealing to the stochastic differential equation (SIDE) representation of the stock process and computing a root of the transition probability matrix of an approximating Markov chain. The results of numerical tests in five dimensions are promising. (C) 2003 Elsevier B.V. All rights reserved.
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页码：353 / 362
页数：10
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