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Geometric Analysis and Partial Differential Equations Seminar

March 13, 2013 @ 10:30 am - 11:30 pm

Geometric Analysis and Partial Differential Equations Seminar Series at UOW
Speaker

Dr. Wenting Chen (University of Wollongong)

Title

An inverse finite element method for pricing American options

Abstract

The pricing of American options has been widely acknowledged as “a much more intriguing” problem in financial engineering. In this paper, a “convergency-proved” IFE (inverse finite element) approach is introduced to the field of financial engineering to price American options for the first time. Without involving any linearization process at all, the current approach deals with the nonlinearity of the pricing problem through an “inverse” approach. Numerical results show that the IFE approach is quite accurate and efficient, and can be easily extended to multi-asset or stochastic volatility pricing problems. The key contribution of this paper to the literature is that we have managed to provide a comprehensive convergence analysis for the IFE approach, including not only an error estimate of the adopted discrete scheme but also the convergence of the adopted iterative scheme, which ensures that our numerical solution does indeed converge to the exact one of the original nonlinear system. This is joint work with Prof. Song-Ping Zhu.

Details

Date:
March 13, 2013
Time:
10:30 am - 11:30 pm
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Venue

Building 39C Room 174
University of Wollongong
Wollongong, 2500
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