A reduced basis method for the simulation of American options

DOI10.1007/978-3-642-33134-3_85zbMATH Open1269.91086arXiv1201.3289OpenAlexW1909146625MaRDI QIDQ2838569FDOQ2838569

Authors: B. Haasdonk, Julien Salomon, B. Wohlmuth 

Publication date: 10 July 2013

Published in: Numerical Mathematics and Advanced Applications 2011 (Search for Journal in Brave)

Abstract: We present a reduced basis method for the simulation of American option pricing. To tackle this model numerically, we formulate the problem in terms of a time dependent variational inequality. Characteristic ingredients are a POD-greedy and an angle-greedy procedure for the construction of the primal and dual reduced spaces. Numerical examples are provided, illustrating the approximation quality and convergence of our approach.

Full work available at URL: https://arxiv.org/abs/1201.3289

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zbMATH Keywords

American optionsreduced basis methodtime-dependent variational inequalityreduced spacesangle-greedy procedurePOD-greedy procedure

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) PDEs in connection with game theory, economics, social and behavioral sciences (35Q91) Numerical methods for variational inequalities and related problems (65K15)

Cited In (13)

• Magic Points in Finance: Empirical Integration for Parametric Option Pricing
• Efficient model reduction of parametrized systems by matrix discrete empirical interpolation
• Chebyshev interpolation for parametric option pricing
• Reduced Basis Methods for Pricing Options with the Black--Scholes and Heston Models
• On pricing options with stressed-beta in a reduced form model
• Reducing sensors for transient heat transfer problems by means of variational data assimilation
• Proper Orthogonal Decomposition in Option Pricing
• The deep parametric PDE method and applications to option pricing
• Reduced models for sparse grid discretizations of the multi-asset Black-Scholes equation
• A reduced basis method for parametrized variational inequalities applied to contact mechanics
• A reduced basis for option pricing
• A New Approach for American Option Pricing: The Dynamic Chebyshev Method
• ROM-based multiobjective optimization of elliptic PDEs via numerical continuation

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