Option Pricing in Jump Diffusion Models with Quadratic Spline Collocation
| Autor: | Nat Chun-Ho Leung, Christina C. Christara |
|---|---|
| Rok vydání: | 2016 |
| Předmět: |
Mathematical optimization
050208 finance Collocation Applied Mathematics Numerical analysis 05 social sciences Jump diffusion Probabilistic logic 010103 numerical & computational mathematics 01 natural sciences Computational Mathematics Valuation of options Fixed-point iteration Collocation method 0502 economics and business Jump 0101 mathematics Mathematics |
| Zdroj: | SSRN Electronic Journal. |
| ISSN: | 1556-5068 |
| DOI: | 10.2139/ssrn.3729049 |
| Popis: | In this paper, we develop a robust numerical method in pricing options, when the underlying asset follows a jump diffusion model. We demonstrate that, with the quadratic spline collocation method, the integral approximation in the pricing PIDE is intuitively simple, and comes down to the evaluation of the probabilistic moments of the jump density. When combined with a Picard iteration scheme, the pricing problem can be solved efficiently. We present the method and the numerical results from pricing European and American options with Merton's and Kou's models. |
| Databáze: | OpenAIRE |
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