University of Jyväskylä | JYX Digital Repository

  • English  | Give feedback |
    • suomi
    • English
 
  • Login
JavaScript is disabled for your browser. Some features of this site may not work without it.
View Item 
  • JYX
  • Artikkelit
  • Informaatioteknologian tiedekunta
  • View Item
JYX > Artikkelit > Informaatioteknologian tiedekunta > View Item

Reduced Order Models for Pricing European and American Options under Stochastic Volatility and Jump-Diffusion Models

ThumbnailFinal Draft
View/Open
400.8 Kb

Downloads:  
Show download detailsHide download details  
Balajewicz, M., & Toivanen, J. (2017). Reduced Order Models for Pricing European and American Options under Stochastic Volatility and Jump-Diffusion Models. Journal of Computational Science, 20, 198-204. https://doi.org/10.1016/j.jocs.2017.01.004
Published in
Journal of Computational Science
Authors
Balajewicz, Maciej |
Toivanen, Jari
Date
2017
Discipline
TietotekniikkaMathematical Information Technology
Copyright
© 2017 Elsevier B.V. This is a final draft version of an article whose final and definitive form has been published by Elsevier. Published in this repository with the kind permission of the publisher.

 
European options can be priced by solving parabolic partial(-integro) differential equations under stochastic volatility and jump-diffusion models like the Heston, Merton, and Bates models. American option prices can be obtained by solving linear complementary problems (LCPs) with the same operators. A finite difference discretization leads to a so-called full order model (FOM). Reduced order models (ROMs) are derived employing proper orthogonal decomposition (POD). The early exercise constraint of American options is enforced by a penalty on subset of grid points. The presented numerical experiments demonstrate that pricing with ROMs can be orders of magnitude faster within a given model parameter variation range.
Publisher
Elsevier
ISSN Search the Publication Forum
1877-7503
Keywords
reduced order model option pricing European option American option linear complementary problem
DOI
https://doi.org/10.1016/j.jocs.2017.01.004
URI

http://urn.fi/URN:NBN:fi:jyu-201705302571

Publication in research information system

https://converis.jyu.fi/converis/portal/detail/Publication/26496934

Metadata
Show full item record
Collections
  • Informaatioteknologian tiedekunta [1856]

Related items

Showing items with similar title or keywords.

  • Reduced order models for pricing American options under stochastic volatility and Jump-diffusion models 

    Balajewicz, Maciej; Toivanen, Jari (Elsevier BV, 2016)
    American options can be priced by solving linear complementary problems (LCPs) with parabolic partial(-integro) differential operators under stochastic volatility and jump-diffusion models like Heston, Merton, and Bates ...
  • An IMEX-Scheme for Pricing Options under Stochastic Volatility Models with Jumps 

    Salmi, Santtu; Toivanen, Jari; von Sydow, Lina (Society for Industrial and Applied Mathematics, 2014)
    Partial integro-differential equation (PIDE) formulations are often preferable for pricing options under models with stochastic volatility and jumps, especially for American-style option contracts. We consider the pricing ...
  • Numerical methods for pricing options under jump-diffusion processes 

    Salmi, Santtu (University of Jyväskylä, 2013)
  • On the a posteriori error analysis for linear Fokker-Planck models in convection-dominated diffusion problems 

    Matculevich, Svetlana; Wolfmayr, Monika (Elsevier, 2018)
    This work is aimed at the derivation of reliable and efficient a posteriori error estimates for convection-dominated diffusion problems motivated by a linear Fokker–Planck problem appearing in computational neuroscience. ...
  • Complementary Judgment Matrix Method with Imprecise Information for Multicriteria Decision-Making 

    Wang, Haichao; Lahdelma, Risto; Salminen, Pekka (Hindawi Publishing Corporation, 2018)
    The complementary judgment matrix (CJM) method is an MCDA (multicriteria decision aiding) method based on pairwise comparisons. As in AHP, the decision-maker (DM) can specify his/her preferences using pairwise comparisons, ...
  • Browse materials
  • Browse materials
  • Articles
  • Conferences and seminars
  • Electronic books
  • Historical maps
  • Journals
  • Tunes and musical notes
  • Photographs
  • Presentations and posters
  • Publication series
  • Research reports
  • Research data
  • Study materials
  • Theses

Browse

All of JYXCollection listBy Issue DateAuthorsSubjectsPublished inDepartmentDiscipline

My Account

Login

Statistics

View Usage Statistics
  • How to publish in JYX?
  • Self-archiving
  • Publish Your Thesis Online
  • Publishing Your Dissertation
  • Publication services

Open Science at the JYU
 
Data Protection Description

Accessibility Statement

Unless otherwise specified, publicly available JYX metadata (excluding abstracts) may be freely reused under the CC0 waiver.
Open Science Centre