Linear complexity solution of parabolic integro-differential equations (Q2502236)

The paper is concerned with developing an efficient numerical scheme for solving parabolic problems \[ u_t + \mathcal{A}u=0 \] where \(\mathcal{A}\) is a pseudo-differential operator. After a review of the problems and existing theory and approaches, detail is given of the finite element discretisation. A wavelet basis is used to transform the dense matrices into sparse ones and a Galerkin-type time discretisation is employed. Detailed theorems on the convergence of the method are given and proved and one can conlude that the complexity of this approach has a log-linear relationship to the number of discretisation points. The paper concludes with some examples and applications to option pricing.