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Adaptive lattice methods for multi-asset models

Authors
Moon, Kyoung-SookKim, Won-JungKim, Hongjoong
Issue Date
7월-2008
Publisher
PERGAMON-ELSEVIER SCIENCE LTD
Keywords
lattice method; multi-asset option pricing; adaptive mesh refinement
Citation
COMPUTERS & MATHEMATICS WITH APPLICATIONS, v.56, no.2, pp.352 - 366
Indexed
SCIE
SCOPUS
Journal Title
COMPUTERS & MATHEMATICS WITH APPLICATIONS
Volume
56
Number
2
Start Page
352
End Page
366
URI
https://scholar.korea.ac.kr/handle/2021.sw.korea/123060
DOI
10.1016/j.camwa.2007.12.008
ISSN
0898-1221
Abstract
Adaptive lattice methods are developed to compute the price of multivariate contingent claims. A simple coordinate representation is used to extend one dimensional lattice methods to multivariate asset models. Two algorithms are proposed, one performing several levels of refinement for a time interval [T - Delta t, T] and the other performing one level of refinement for lambda% of a given time domain [0, T], where T is the time to maturity, At is the time step size and lambda > 0 is a constant. Numerical experiments are carried out for the European and American barder-type options with one, two, or three underlying assets. In our numerical experiments, both adaptive algorithms improve efficiency over lattice methods with a uniform time step for the same level of accuracy. (C) 2008 Elsevier Ltd. All rights reserved.
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