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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6990.pdf - Author's Accepted Manuscript Download (581kB) | Preview |
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 |
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| 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 Faculties and Schools > Faculty of Business and Law > Birkbeck Business School |
| Depositing User: | Raymond Brummelhuis |
| Date Deposited: | 09 Jan 2014 12:02 |
| Last Modified: | 02 Aug 2023 17:04 |
| URI: | https://eprints.bbk.ac.uk/id/eprint/6990 |
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