On power penalty methods for linear complementarity problems arising from American option pricing

DOI10.1007/S10898-015-0291-6zbMATH Open1321.91115OpenAlexW1972211416MaRDI QIDQ496599FDOQ496599

Authors: Zhe Sun, Zhe Liu, Xiao Qi Yang 

Publication date: 22 September 2015

Published in: Journal of Global Optimization (Search for Journal in Brave)

Full work available at URL: https://doi.org/10.1007/s10898-015-0291-6

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zbMATH Keywords

linear complementarity problemiterative methodmonotone convergenceAmerican option pricingpenalized equations

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60) Multigrid methods; domain decomposition for boundary value problems involving PDEs (65N55) Methods of quasi-Newton type (90C53) Numerical computation of solutions to systems of equations (65H10) Complementarity and equilibrium problems and variational inequalities (finite dimensions) (aspects of mathematical programming) (90C33) Stopping times; optimal stopping problems; gambling theory (60G40)

Cites Work

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• Convergence of a fitted finite volume method for the penalized Black-Scholes equation governing European and American option pricing
• A power penalty method for linear complementarity problems
• A novel fitted finite volume method for the Black-Scholes equation governing option pricing
• W1 -convergence of the discrete free boundary for obstacle problems
• Numerical performance of penalty method for American option pricing
• Convergence analysis of power penalty method for American bond option pricing
• A penalty-based method from reconstructing smooth local volatility surface from American options
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Cited In (11)

• Numerical performance of penalty method for American option pricing
• Solution method for discrete double obstacle problems based on a power penalty approach
• Power penalty approach to American options pricing under regime switching
• Lattice Boltzmann method for the linear complementarity problem arising from American option pricing
• Convergence analysis of a monotonic penalty method for American option pricing
• Efficient numerical pricing of American options based on multiple shooting method: a PDE approach
• Low-order penalty equations for semidefinite linear complementarity problems
• Haar‐wavelet based approximation for pricing American options under linear complementarity formulations
• Power penalty method for solving HJB equations arising from finance
• A power penalty method for discrete HJB equations
• Power penalty method for a linear complementarity problem arising from American option valuation

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