Operator splitting schemes for the two-asset Merton jump-diffusion model
From MaRDI portal
Publication:2223797
partial integro-differential equationsoperator splitting schemestwo-asset Merton jump-diffusion model
Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60) PDEs in connection with game theory, economics, social and behavioral sciences (35Q91) Integro-partial differential equations (45K05) Integro-partial differential equations (35R09) Finite difference methods for initial value and initial-boundary value problems involving PDEs (65M06) Numerical methods for discrete and fast Fourier transforms (65T50) Method of lines for boundary value problems involving PDEs (65N40) Jump processes on discrete state spaces (60J74)
Abstract: This paper deals with the numerical solution of the two-dimensional time-dependent Merton partial integro-differential equation (PIDE) for the values of rainbow options under the two-asset Merton jump-diffusion model. Key features of this well-known equation are a two-dimensional nonlocal integral part and a mixed spatial derivative term. For its efficient and stable numerical solution, we study seven recent and novel operator splitting schemes of the implicit-explicit (IMEX) and the alternating direction implicit (ADI) kind. Here the integral part is always conveniently treated in an explicit fashion. The convergence behaviour and the relative performance of the seven schemes are investigated in ample numerical experiments for both European put-on-the-min and put-on-the-average options.
Recommendations
- Operator splitting schemes for American options under the two-asset Merton jump-diffusion model
- An operator splitting method for multi-asset options with the Feynman-Kac formula
- Operator splitting methods for pricing American options under stochastic volatility
- A splitting strategy for the calibration of jump-diffusion models
- A high order weak approximation for jump-diffusions using Malliavin calculus and operator splitting
- Splitting scheme for backward doubly stochastic differential equations
- A quick operator splitting method for option pricing
- An operator splitting method for pricing the ELS option
- scientific article; zbMATH DE number 5346999
- Application of operator splitting methods in finance
Cites work
- scientific article; zbMATH DE number 1967777 (Why is no real title available?)
- A Finite Difference Scheme for Option Pricing in Jump Diffusion and Exponential Lévy Models
- A Second-order Finite Difference Method for Option Pricing Under Jump-diffusion Models
- A closed-form solution for options with stochastic volatility with applications to bond and currency options
- A finite volume approach for contingent claims valuation
- A novel pricing method for European options based on Fourier-cosine series expansions
- ADI schemes for valuing European options under the Bates model
- AMF-type W-methods for parabolic problems with mixed derivatives
- An IMEX-scheme for pricing options under stochastic volatility models with jumps
- Application of operator splitting methods in finance
- BENCHOP -- SLV: the BENCHmarking project in option pricing -- stochastic and local volatility problems
- Convergence of the modified Craig-Sneyd scheme for two-dimensional convection-diffusion equations with mixed derivative term
- European rainbow option values under the two-asset Merton jump-diffusion model
- Finite element solution of diffusion problems with irregular data
- IMEX schemes for pricing options under jump-diffusion models
- Implicit-explicit numerical schemes for jump-diffusion processes
- Jump without tears: a new splitting technology for barrier options
- Jump-diffusion processes: volatility smile fitting and numerical methods for option pricing
- Numerical solution of two asset jump diffusion models for option valuation
- Numerical valuation of options with jumps in the underlying
- On multistep stabilizing correction splitting methods with applications to the Heston model
- On the contractivity of implicit-explicit linear multistep methods
- On the stability of implicit-explicit linear multistep methods
- Option pricing when underlying stock returns are discontinuous
- Paul Wilmott on quantitative finance. 3 Vols. With CD-ROM
- Pricing Options in Jump-Diffusion Models: An Extrapolation Approach
- Pricing derivatives under Lévy models. Modern finite-difference and pseudo-differential operators approach
- Robust numerical methods for contingent claims under jump diffusion processes
- Stability of the modified Craig-Sneyd scheme for two-dimensional convection-diffusion equations with mixed derivative term
- The pricing of options and corporate liabilities
- Unconditional stability of second-order ADI schemes applied to multi-dimensional diffusion equations with mixed derivative terms
Cited in
(9)- High-performance computation of pricing two-asset American options under the Merton jump-diffusion model on a GPU
- A posteriori error control and adaptivity for the IMEX BDF2 method for PIDEs with application to options pricing models
- European rainbow option values under the two-asset Merton jump-diffusion model
- An operator splitting method for multi-asset options with the Feynman-Kac formula
- Operator splitting schemes for American options under the two-asset Merton jump-diffusion model
- Splitting and matrix exponential approach for jump-diffusion models with Inverse Normal Gaussian, Hyperbolic and Meixner jumps
- An efficient variable step-size method for options pricing under jump-diffusion models with nonsmooth payoff function
- Valuation of two-factor options under the Merton jump-diffusion model using orthogonal spline wavelets.
- Adaptive option pricing based on a posteriori error estimates for fully discrete finite difference methods
This page was built for publication: Operator splitting schemes for the two-asset Merton jump-diffusion model
Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q2223797)
