Publication
Title
A two-grid penalty method for American options
Author
Abstract
In this paper we consider the pricing of American options, governed by a partial differential complementarity problem. The differential problem is first approximated by a semi-linear PDE using two distinct penalty approaches which are well known in computational finance. We then initiate the two-grid algorithm by solving the nonlinear problem on a coarse grid and further the linearized in the interpolated coarse-grid solution problem on a fine grid. By means of the maximum principle the algorithm is shown to be of fourth order convergence rate in space. Numerical experiments verify the presented two-grid approach where we draw some interesting conclusions.
Language
English
Source (journal)
Computational and Applied Mathematics
Publication
2018
ISSN
0101-8205
Volume/pages
37:3(2018), p. 2381-2398
ISI
000438312300001
Full text (Publisher's DOI)
Full text (publisher's version - intranet only)
UAntwerpen
Project info
Novel methods in computational finance (STRIKE).
Publication type
Subject
Affiliation
Publications with a UAntwerp address
External links
Web of Science
Record
Identification
Creation 02.08.2018
Last edited 14.09.2021
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