A non linear approximation method for solving high dimensional partial differential equations: application in finance

DOI10.1016/J.MATCOM.2016.07.013MaRDI QIDQ1996929zbMATH OpenOpenAlexFDO

Authors Yanyan Li

Publication date 1 March 2021

Published in Mathematics and Computers in Simulation (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1309.3731

zbMATH Keywords

variance reductiongreedy algorithmsBlack-Scholes partial differential equation

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60) Second-order parabolic equations (35K10) PDEs with randomness, stochastic partial differential equations (35R60) Numerical methods for partial differential equations, initial value and time-dependent initial-boundary value problems (65M99)

Abstract: We study an algorithm which has been proposed by Chinesta et al. to solve high-dimensional partial differential equations. The idea is to represent the solution as a sum of tensor products and to compute iteratively the terms of this sum. This algorithm is related to the so-called greedy algorithm introduced by Temlyakov. In this paper, we investigate the application of the greedy algorithm in finance and more precisely to the option pricing problem. We approximate the solution to the Black-Scholes equation and we propose a variance reduction method. In numerical experiments, we obtain results for up to 10 underlyings. Besides, the proposed variance reduction method permits an important reduction of the variance in comparison with a classical Monte Carlo method.

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Cites work

• scientific article; zbMATH DE number 1250672 (Why is no real title available?)
• A new family of solvers for some classes of multidimensional partial differential equations encountered in kinetic theory modeling of complex fluids
• Computational Methods for Option Pricing
• Convergence of a greedy algorithm for high-dimensional convex nonlinear problems
• Greedy approximation
• Results and questions on a nonlinear approximation approach for solving high-dimensional partial differential equations
• Some remarks on greedy algorithms

Cited in

(5)

• High-order ADI finite difference schemes for parabolic equations in the combination technique with application in finance
• Results and questions on a nonlinear approximation approach for solving high-dimensional partial differential equations
• A kernel-based algorithm for numerical solution of nonlinear PDEs in finance
• Using spectral element method to solve variational inequalities with applications in finance
• Dimension-wise integration of high-dimensional functions with applications to finance

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