Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
484134 | Procedia Computer Science | 2016 | 10 Pages |
Abstract
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 models. These operators are discretized using finite difference methods leading to a so-called full order model (FOM). Here reduced order models (ROMs) are derived employing proper orthogonal decomposition (POD) and non negative matrix factorization (NNMF) in order to make pricing much faster within a given model parameter variation range. The numerical experiments demonstrate orders of magnitude faster pricing with ROMs.
Related Topics
Physical Sciences and Engineering
Computer Science
Computer Science (General)
Authors
Maciej Balajewicz, Jari Toivanen,