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An effective algorithm to solve option pricing problems | ||
| International Journal of Nonlinear Analysis and Applications | ||
| مقاله 21، دوره 12، شماره 1، مرداد 2021، صفحه 261-271 اصل مقاله (839.51 K) | ||
| نوع مقاله: Research Paper | ||
| شناسه دیجیتال (DOI): 10.22075/ijnaa.2021.4782 | ||
| نویسنده | ||
| Mojtaba Moradipour* | ||
| Department of Mathematics, Lorestan University, Khorramabad, Iran | ||
| تاریخ دریافت: 28 مرداد 1399، تاریخ بازنگری: 17 آبان 1399، تاریخ پذیرش: 20 آبان 1399 | ||
| چکیده | ||
| We are aimed to develop a fast and direct algorithm to solve linear complementarity problems (LCP's) arising from option pricing problems. We discretize the free boundary problem of American options in temporal direction and obtain a sequence of linear complementarity problems (LCP's) in the finite dimensional Euclidian space $\mathbb{R}^m$. We develop a fast and direct algorithm based on the active set strategy to solve the LCP's. The active set strategy in general needs $O(2^m m^3)$ operations to solve $m$ dimensional LCP's. Using Thomas algorithm, we develop an algorithm with order of complexity $O(m)$ which can extremely speed up the computations. | ||
| کلیدواژهها | ||
| American options؛ variational inequalities؛ linear complementarity problems | ||
| مراجع | ||
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