A new method for solving Kolmogorov equations in mathematical finance

DOI10.1016/J.CRMA.2017.05.003MaRDI QIDQ2363532zbMATH OpenOpenAlexFDO

Authors Philippe G. LeFloch, Jean-Marc Mercier

Publication date 19 July 2017

Published in Comptes Rendus. Mathématique. Académie des Sciences, Paris (Search for Journal in Brave)

Full work available at URL https://doi.org/10.1016/j.crma.2017.05.003

zbMATH Keywords

Fokker-Plank equationKolmogorov equationMonte Carlooption pricing

Mathematics Subject Classification ID

Fokker-Planck equations (35Q84) Multigrid methods; domain decomposition for initial value and initial-boundary value problems involving PDEs (65M55) Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60)

Review text

The authors summarize research into the Fokker-Plank and Kolmogorov equations with application to calibration and valuation of models in finance. They propose an approach that combines a localization method and a mesh-free technique. Through several numerical examples benchmarking accuracy and convergence, they show the advantages of their algorithm, dubbed CoDeFi.

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Cites work

• Mersenne twister
• Polar factorization and monotone rearrangement of vector‐valued functions
• Revisiting the method of characteristics via a convex hull algorithm

Cited in

(9)

• A new simulation scheme of diffusion processes: Application of the Kusuoka approximation to finance problems.
• Multilayer heat equations: application to finance
• Mesh-free error integration in arbitrary dimensions: a numerical study of discrepancy functions
• Analysis and computation of probability density functions for a 1-D impulsively controlled diffusion process
• The forward Kolmogorov equation for two dimensional options
• Kolmogorov equations arising in finance: direct and inverse problems
• scientific article; zbMATH DE number 2225916 (Why is no real title available?)
• A new method for generating approximation algorithms for financial mathematics applications
• A class of mesh-free algorithms for some problems arising in finance and machine learning

Describes a project that uses

Uses Software

• MersenneTwister

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