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    An RBF scheme for option pricing in exponential Levy models

    Brummelhuis, Raymond and Chan, R.T.L. (2014) An RBF scheme for option pricing in exponential Levy models. Applied Mathematical Finance 21 (3), pp. 238-269. ISSN 1466-4313.

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    Abstract

    We use Radial Basis Function (RBF) interpolation to price options in exponential Lévy models by numerically solving the fundamental pricing PIDE (Partial integro-differential equations). Our RBF scheme can handle arbitrary singularities of the Lévy measure in 0 without introducing further approximations, making it simpler to implement than competing methods. In numerical experiments using processes from the CGMY-KoBoL class, the scheme is found to be second order convergent in the number of interpolation points, including for processes of unbounded variation.

    Metadata

    Item Type: Article
    Additional Information: This is an Author's Accepted Manuscript of an article published in [include the complete citation information for the final version of the article as published in Applied Mathematical Finance, December 17th 2013 [copyright Taylor & Francis], available online at: http://dx.doi.org/10.1080/1350486X.2013.850902
    Keyword(s) / Subject(s): Option pricing in exponential Levy models, CGMY-KoBol and VG processes, Partial Integro Differential Equations (PIDE), Radial Basis Function interpolation, Multi-quadrics
    School: Birkbeck Schools and Departments > School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Depositing User: Raymond Brummelhuis
    Date Deposited: 09 Jan 2014 12:02
    Last Modified: 26 Jul 2019 23:03
    URI: http://eprints.bbk.ac.uk/id/eprint/6990

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