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A penalty approximation method for a semilinear parabolic double obstacle problem

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  • Y. Zhou
  • S. Wang
  • X. Yang

Abstract

In this work, we present a novel power penalty method for the approximation of a global solution to a double obstacle complementarity problem involving a semilinear parabolic differential operator and a bounded feasible solution set. We first rewrite the double obstacle complementarity problem as a double obstacle variational inequality problem. Then, we construct a semilinear parabolic partial differential equation (penalized equation) for approximating the variational inequality problem. We prove that the solution to the penalized equation converges to that of the variational inequality problem and obtain a convergence rate that is corresponding to the power used in the formulation of the penalized equation. Numerical results are presented to demonstrate the theoretical findings. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Y. Zhou & S. Wang & X. Yang, 2014. "A penalty approximation method for a semilinear parabolic double obstacle problem," Journal of Global Optimization, Springer, vol. 60(3), pages 531-550, November.
    • Handle: RePEc:spr:jglopt:v:60:y:2014:i:3:p:531-550
    DOI: 10.1007/s10898-013-0122-6
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    References listed on IDEAS

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    1. S. Wang & X. Q. Yang & K. L. Teo, 2006. "Power Penalty Method for a Linear Complementarity Problem Arising from American Option Valuation," Journal of Optimization Theory and Applications, Springer, vol. 129(2), pages 227-254, May.
    2. W. Li & S. Wang, 2009. "Penalty Approach to the HJB Equation Arising in European Stock Option Pricing with Proportional Transaction Costs," Journal of Optimization Theory and Applications, Springer, vol. 143(2), pages 279-293, November.
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    Cited by:

    1. Jinxia Cen & Tahar Haddad & Van Thien Nguyen & Shengda Zeng, 2022. "Simultaneous distributed-boundary optimal control problems driven by nonlinear complementarity systems," Journal of Global Optimization, Springer, vol. 84(3), pages 783-805, November.
    2. Yarui Duan & Song Wang & Yuying Zhou, 2021. "A power penalty approach to a mixed quasilinear elliptic complementarity problem," Journal of Global Optimization, Springer, vol. 81(4), pages 901-918, December.
    3. Yoshioka, Hidekazu & Yaegashi, Yuta, 2019. "A finite difference scheme for variational inequalities arising in stochastic control problems with several singular control variables," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 156(C), pages 40-66.
    4. Chen, Wen & Wang, Song, 2017. "A power penalty method for a 2D fractional partial differential linear complementarity problem governing two-asset American option pricing," Applied Mathematics and Computation, Elsevier, vol. 305(C), pages 174-187.

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