IDEAS home Printed from https://ideas.repec.org/a/spr/dyngam/v15y2025i2d10.1007_s13235-024-00601-7.html
   My bibliography  Save this article

Discretization of Fractional Fully Nonlinear Equations by Powers of Discrete Laplacians

Author

Listed:
  • Indranil Chowdhury

    (Indian Institute of Technology)

  • Espen R. Jakobsen

    (Norwegian University of Science and Technology)

  • Robin Ø Lien

    (Norwegian University of Science and Technology)

Abstract

We study discretizations of fractional fully nonlinear equations by powers of discrete Laplacians. Our problems are parabolic and of order $$\sigma \in (0,2)$$ σ ∈ ( 0 , 2 ) since they involve fractional Laplace operators $$(-\Delta )^{\sigma /2}$$ ( - Δ ) σ / 2 . They arise e.g. in control and game theory as dynamic programming equations – HJB and Isaacs equation – and solutions are non-smooth in general and should be interpreted as viscosity solutions. Our approximations are realized as finite-difference quadrature approximations and are 2nd order accurate for all values of $$\sigma $$ σ . The accuracy of previous approximations of fractional fully nonlinear equations depend on $$\sigma $$ σ and are worse when $$\sigma $$ σ is close to 2. We show that the schemes are monotone, consistent, $$L^\infty $$ L ∞ -stable, and convergent using a priori estimates, viscosity solutions theory, and the method of half-relaxed limits. We also prove a second order error bound for smooth solutions and present many numerical examples.

Suggested Citation

  • Indranil Chowdhury & Espen R. Jakobsen & Robin Ø Lien, 2025. "Discretization of Fractional Fully Nonlinear Equations by Powers of Discrete Laplacians," Dynamic Games and Applications, Springer, vol. 15(2), pages 383-405, May.
    • Handle: RePEc:spr:dyngam:v:15:y:2025:i:2:d:10.1007_s13235-024-00601-7
    DOI: 10.1007/s13235-024-00601-7
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s13235-024-00601-7
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s13235-024-00601-7?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Bouchard, Bruno & Touzi, Nizar, 2004. "Discrete-time approximation and Monte-Carlo simulation of backward stochastic differential equations," Stochastic Processes and their Applications, Elsevier, vol. 111(2), pages 175-206, June.
    2. Rama Cont & Ekaterina Voltchkova, 2005. "A Finite Difference Scheme for Option Pricing in Jump Diffusion and Exponential Lévy Models," Post-Print halshs-00445645, HAL.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fujii, Masaaki & Takahashi, Akihiko, 2019. "Solving backward stochastic differential equations with quadratic-growth drivers by connecting the short-term expansions," Stochastic Processes and their Applications, Elsevier, vol. 129(5), pages 1492-1532.
    2. Bouchard Bruno & Tan Xiaolu & Warin Xavier & Zou Yiyi, 2017. "Numerical approximation of BSDEs using local polynomial drivers and branching processes," Monte Carlo Methods and Applications, De Gruyter, vol. 23(4), pages 241-263, December.
    3. Lukas Gonon & Christoph Schwab, 2021. "Deep ReLU network expression rates for option prices in high-dimensional, exponential Lévy models," Finance and Stochastics, Springer, vol. 25(4), pages 615-657, October.
    4. Masaaki Fujii & Akihiko Takahashi, 2015. "Perturbative Expansion Technique for Non-linear FBSDEs with Interacting Particle Method," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 22(3), pages 283-304, September.
    5. Masaaki Fujii & Akihiko Takahshi, 2015. "Perturbative Expansion Technique for Non-linear FBSDEs with Interacting Particle Method," CIRJE F-Series CIRJE-F-954, CIRJE, Faculty of Economics, University of Tokyo.
    6. Song-Ping Zhu & Xin-Jiang He, 2018. "A hybrid computational approach for option pricing," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 5(03), pages 1-16, September.
    7. Jean-Franc{c}ois Chassagneux & Junchao Chen & Noufel Frikha, 2022. "Deep Runge-Kutta schemes for BSDEs," Papers 2212.14372, arXiv.org.
    8. Gobet, Emmanuel & Labart, Céline, 2007. "Error expansion for the discretization of backward stochastic differential equations," Stochastic Processes and their Applications, Elsevier, vol. 117(7), pages 803-829, July.
    9. Giorgia Callegaro & Alessandro Gnoatto & Martino Grasselli, 2021. "A Fully Quantization-based Scheme for FBSDEs," Working Papers 07/2021, University of Verona, Department of Economics.
    10. Ron Tat Lung Chan, 2016. "Adaptive Radial Basis Function Methods for Pricing Options Under Jump-Diffusion Models," Computational Economics, Springer;Society for Computational Economics, vol. 47(4), pages 623-643, April.
    11. Jean-Franc{c}ois Chassagneux & Mohan Yang, 2021. "Numerical approximation of singular Forward-Backward SDEs," Papers 2106.15496, arXiv.org.
    12. Hao Zhou & Duy-Minh Dang, 2024. "Numerical analysis of American option pricing in a two-asset jump-diffusion model," Papers 2410.04745, arXiv.org, revised Apr 2025.
    13. Le Cavil Anthony & Oudjane Nadia & Russo Francesco, 2018. "Monte-Carlo algorithms for a forward Feynman–Kac-type representation for semilinear nonconservative partial differential equations," Monte Carlo Methods and Applications, De Gruyter, vol. 24(1), pages 55-70, March.
    14. Karel in 't Hout & Pieter Lamotte, 2022. "Efficient numerical valuation of European options under the two-asset Kou jump-diffusion model," Papers 2207.10060, arXiv.org, revised May 2023.
    15. Zhang, Shen & Xu, Juanjuan & Zhang, Huanshui, 2024. "Decentralized control of forward and backward stochastic difference system with nested asymmetric information," Applied Mathematics and Computation, Elsevier, vol. 478(C).
    16. Kyriakos Georgiou & Athanasios N. Yannacopoulos, 2023. "Probability of Default modelling with L\'evy-driven Ornstein-Uhlenbeck processes and applications in credit risk under the IFRS 9," Papers 2309.12384, arXiv.org.
    17. N. Hilber & N. Reich & C. Schwab & C. Winter, 2009. "Numerical methods for Lévy processes," Finance and Stochastics, Springer, vol. 13(4), pages 471-500, September.
    18. Moustapha Pemy, 2018. "Explicit Solutions for Optimal Resource Extraction Problems under Regime Switching L\'evy Models," Papers 1806.06105, arXiv.org.
    19. Andrew Lesniewski & Anja Richter, 2016. "Managing counterparty credit risk via BSDEs," Papers 1608.03237, arXiv.org, revised Aug 2016.
    20. Pelsser Antoon & Gnameho Kossi, 2019. "A Monte Carlo method for backward stochastic differential equations with Hermite martingales," Monte Carlo Methods and Applications, De Gruyter, vol. 25(1), pages 37-60, March.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:dyngam:v:15:y:2025:i:2:d:10.1007_s13235-024-00601-7. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.