A Numerical Method to Approximate Multi-Asset Option Pricing Under Exponential Lévy Model

Leila Khodayari () and Mojtaba Ranjbar ()
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Leila Khodayari: Azarbaijan Shahid Madani University
Mojtaba Ranjbar: Azarbaijan Shahid Madani University

Computational Economics, 2017, vol. 50, issue 2, No 2, 189-205

Abstract: Abstract In this paper, a modification of the original global radial basis functions-based differential quadrature (RBF-DQ) method is set forth and analyzed. The improved RBF-DQ method is applicable to the numerical approximation of solutions of a wide range of partial differential equations with mixed derivative terms. However, it appears to be considerably faster than the original method. In support of this contention, the multi-asset option pricing problems under exponential Lévy framework have been solved numerically by using the proposed method and compared with results obtained via the original RBF-DQ method. For accuracy achieved versus work expended, the improved method performs better.

Keywords: Radial basis functions; Differential quadrature; Multi-asset option pricing; Lévy process; 65M12; 45K05; 60J75; 65M06 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s10614-016-9605-0

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