Wavelet-Galerkin Method for Option Pricing under a Double Exponential Jump-Diffusion Model

Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F46747885%3A24510%2F18%3A00007362" target="_blank" >RIV/46747885:24510/18:00007362 - isvavai.cz</a>
Result on the web
<a href="https://ieeexplore.ieee.org/abstract/document/8769787" target="_blank" >https://ieeexplore.ieee.org/abstract/document/8769787</a>
DOI - Digital Object Identifier
<a href="http://dx.doi.org/10.1109/MCSI.2018.00037" target="_blank" >10.1109/MCSI.2018.00037</a>

Result language
angličtina
Original language name
Wavelet-Galerkin Method for Option Pricing under a Double Exponential Jump-Diffusion Model
Original language description
The paper is concerned with pricing European options using a double exponential jump-diffusion model proposed by Kou in 2002. The Kou model is represented by nonstationary partial integro-differential equation. We use the Crank-Nicolson scheme for semidiscretization in time and the Galerkin method with cubic spline wavelets for solving integro-differential equation at each time level. We show the decay of elements of the matrices arising from discretization of the integral term of the equation. Due to this decay the discretization matrices can be truncated and represented by quasi-sparse matrices while the most standard methods suffer from the fact that the discretization matrices are full. Since the basis functions are piecewise cubic we obtain a high order convergence and the problem can be resolved with the small number of degrees of freedom. We present a numerical example for a European put option and we compare the results with other methods.
Czech name
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Czech description
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Project
<a href="/en/project/GA16-09541S" target="_blank" >GA16-09541S: Robust numerical schemes for pricing of selected options under various market conditions</a><br>
Continuities
P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)

Publication year
2018
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Article name in the collection
5TH INTERNATIONAL CONFERENCE ON MATHEMATICS AND COMPUTERS IN SCIENCES AND INDUSTRY (MCSI 2018)
ISBN
978-1-5386-7500-7
ISSN
—
e-ISSN
—
Number of pages
6
Pages from-to
—
Publisher name
IEEE
Place of publication
NEW YORK, USA
Event location
Corfu, Greece
Event date
Jan 1, 2018
Type of event by nationality
WRD - Celosvětová akce
UT code for WoS article
000493389900025

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