Error analysis of truncated expansion solutions to high-dimensional parabolic PDEs

DOI10.1051/M2AN/2017003MaRDI QIDQ3133570zbMATHOpenAlexFDO

Authors Rasmus Wissmann, C. Reisinger

Publication date 2 February 2018

Published in ESAIM: Mathematical Modelling and Numerical Analysis (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1505.04639

zbMATH Keywords

convergenceerror boundsasymptotic expansionsnumerical resultfinancial derivative pricinghigh-dimensional parabolic equations

Mathematics Subject Classification ID

Numerical methods (including Monte Carlo methods) (91G60) Initial value problems for second-order parabolic equations (35K15) Finite difference methods for initial value and initial-boundary value problems involving PDEs (65M06) Error bounds for initial value and initial-boundary value problems involving PDEs (65M15)

Abstract: We study an expansion method for high-dimensional parabolic PDEs which constructs accurate approximate solutions by decomposition into solutions to lower-dimensional PDEs, and which is particularly effective if there are a low number of dominant principal components. The focus of the present article is the derivation of sharp error bounds for the constant coefficient case and a first and second order approximation. We give a precise characterisation when these bounds hold for (non-smooth) option pricing applications and provide numerical results demonstrating that the practically observed convergence speed is in agreement with the theoretical predictions.

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