Computational Algorithms for Vertical Complementarity Arising in Finance
AbstractWe consider efficient computational algorithms for vertical complementarity problems. Vertical complementarity represents the equilibrium relationship among functions such that min (F1(x),...,Fm(x))=0 . This form is more general than the ordinary complementarity relationship, min (x, F(x))=0 . We consider an application in finance in terms of an option-hedging problem under transaction costs formulated as a singular stochastic control problem. This is expressed as a quasi-variational inequality. It is fully nonlinear and non-differentiable and belongs to a class of multi-dimensional free boundary problems equivalent to a vertical complementarity problem. In order to solve the quasi-variational inequality, alternative formulations are investigated. In addition, efficient numerical schemes are considered to provide a numerical solution.
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Bibliographic InfoPaper provided by Society for Computational Economics in its series Computing in Economics and Finance 1999 with number 931.
Date of creation: 01 Mar 1999
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- Tetsuya Noguchi & Berc Rustem, 2002. "An algorithm for the quasivariational inequality arising in option pricing with transaction costs II," Computing in Economics and Finance 2002 379, Society for Computational Economics.
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