Model Reduction Methods In Option Pricing
AbstractIn this work we introduce the Proper Orthogonal Decomposition (POD)approach to the valuation of contingent claims for one–dimensional price models.First, we present the POD in the context of an abstract Hilbert space and we givean application for the numerical pricing of Double Barrier Options. In a finitedimension setting, we show the model reduction method for Finite Differenceschemes of implicit type. In particular, we construct the reduced version of theCrank–Nicolson scheme and some numerical examples are given.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2006-16.
Length: 27 pages
Date of creation: Jul 2006
Date of revision:
Publication status: Published by Ivie
Model Reduction; Proper Orthogonal Decomposition; Finite Difference Schemes; Crank–Nicolson Scheme.;
Find related papers by JEL classification:
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
- M14 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
- M42 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Auditing
This paper has been announced in the following NEP Reports:
You can help add them by filling out this form.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Departamento de Edición).
If references are entirely missing, you can add them using this form.