On a semi-spectral method for pricing an option on a mean-reverting asset

Autor:	B S Pavlov, Len Bos, Antony Ware
Rok vydání:	2002
Předmět:	Mathematical optimization Matrix (mathematics) Diffusion equation Laguerre's method Tridiagonal matrix Stochastic process Mean reversion Laguerre polynomials Applied mathematics Spectral method General Economics Econometrics and Finance Finance Mathematics
Zdroj:	Quantitative Finance. 2:337-345
ISSN:	1469-7696 1469-7688
Popis:	We consider a risky asset following a mean-reverting stochastic process of the form We show that the (singular) diffusion equation which gives the value of a European option on S can be represented, upon expanding in Laguerre polynomials, by a tridiagonal infinite matrix. We analyse this matrix to show that the diffusion equation does indeed have a solution and truncate the matrix to give a simple, highly efficient method for the numerical calculation of the solution.
Databáze:	OpenAIRE
Externí odkaz:	https://explore.openaire.eu/search/publication?articleId=doi_________::8fd865304daab54432d3bfc5b6b87abe https://doi.org/10.1088/1469-7688/2/5/302 Zobrazit plný text záznamu Plný text ve formátu PDF