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- Pettersson, Ulrika, et al.
(author)
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Improved radial basis function methods for multi-dimensional option pricing
- 2006
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Reports (other academic/artistic)abstract
- In this paper, we have derived a radial basis function (RBF) based method for the pricing of financial contracts by solving the Black-Scholes partial differential equation. As an example of a financial contract that can be priced with this method we have chosen the multi-dimensional European basket call option. We have shown numerically that our scheme is second order accurate in time and spectrally accurate in space for constant shape parameter. For other, non-optimal choices of shape parameter values, the resulting convergence rate is algebraic. We propose an adaptive node point placement that improves the accuracy compared with a uniform distribution. Compared with an adaptive finite difference method, the RBF method is 20-40 times faster in one and two space dimensions and has approximately the same memory requirements.
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- Pettersson, Ulrika, et al.
(author)
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Option pricing using radial basis functions
- 2005
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In: Proc. ECCOMAS Thematic Conference on Meshless Methods. - Lisboa, Portugal : Departamento de Matemática, Instituto Superior Técnico. - 9729928916 ; , s. C24.1-6
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Conference paper (peer-reviewed)
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