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Wavelet based Multi-grid analysis, Wavelet Galerkin method and their Applications to American option: A Survey

Author

Listed:
  • Ken-ichi Mitsui

    (Graduate School of Economics, Osaka University)

  • Yoshio Tabata

    (Graduate School of Economics, Osaka University)

Abstract

This paper surveys the literatures on numerical methods from its origins to present to evaluate American-style claims. An extensive review of numerical meth- ods is provided. In particular, emphases is placed on recent trends and developments in the multi-grid and Galerkin method with the Wavelet basis for American option. Mainly, this paper considers two wavelet based numerical methods. One is that the wavelet basis is used in the restriction and the prolongation in terms of the multi- grid method. The other is the discretization of the components of the Dirichlet problem and the test function in the Galerkin formulation. For the applications of their methods to American option, there are some papers by using the Wavelet Galerkin method with the fixed point iteration method. The multi-grid method without using the Wavelet basis is also used in the American option. It, however, seems that there are not enough studies which are applied to the pricing of Ameri- can options with the wavelet basis.

Suggested Citation

  • Ken-ichi Mitsui & Yoshio Tabata, 2005. "Wavelet based Multi-grid analysis, Wavelet Galerkin method and their Applications to American option: A Survey," Discussion Papers in Economics and Business 05-26, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:0526
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    References listed on IDEAS

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    1. Tomas Björk & Yuri Kabanov & Wolfgang Runggaldier, 1997. "Bond Market Structure in the Presence of Marked Point Processes," Mathematical Finance, Wiley Blackwell, vol. 7(2), pages 211-239, April.
    2. Patrick Jaillet & Damien Lamberton & Bernard Lapeyre, 1990. "Variational inequalities and the pricing of American options," Post-Print hal-01667008, HAL.
    3. Stephane Villeneuve, 1999. "Exercise regions of American options on several assets," Finance and Stochastics, Springer, vol. 3(3), pages 295-322.
    4. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
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    More about this item

    Keywords

    American option; multi-grid methods; wavelet analysis; multiresolution analysis.;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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