14th Seminar on Mathematics for various disciplines

(COE Partner Seminar, Department of Mathematics, Hokkaido University )

Contents

Outline

Period :
April 11, 2007 (Wednesday) 10:30-11:30
Place :
Graduate School of Mathematical Sciences the University of Tokyo, Room #056
Programme :
C. W. Oosterlee (Delft University of Technology)
The numerical treatment of pricing early exercise options under L'evy processes
ABSTRACT:
In this presentation we will discuss the pricing of American and Bermudan options under L'evy process dynamics. Two different approaches will be discussed: First of all, modelling with differential operators gives rise to the numerical solution of a partial-integro differential equation for obtaining European option prices. For American prices a linear complementarity problem with the partial integro-differential operator needs to be solved. We outline the difficulties and possible solutions in this context. At the same time we would also like to present a different pricing approach based on numerical integration and the fast Fourier Transform. Both approaches are compared in terms of accuracy and efficiency.