A reduced basis method for the simulation of American options

DOI10.1007/978-3-642-33134-3_85MaRDI QIDQ2838569zbMATH OpenOpenAlexFDO

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)

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

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)

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.

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(13)

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• Chebyshev interpolation for parametric option pricing
• Efficient model reduction of parametrized systems by matrix discrete empirical interpolation
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• 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
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• A New Approach for American Option Pricing: The Dynamic Chebyshev Method
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• ROM-based multiobjective optimization of elliptic PDEs via numerical continuation

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