A Convolution Method for Numerical Solution of Backward Stochastic Differential Equations

Cody B. Hyndman () and Polynice Oyono Ngou
Additional contact information
Cody B. Hyndman: Concordia University
Polynice Oyono Ngou: Concordia University

Methodology and Computing in Applied Probability, 2017, vol. 19, issue 1, 1-29

Abstract: Abstract We propose a new method for the numerical solution of backward stochastic differential equations (BSDEs) which finds its roots in Fourier analysis. The method consists of an Euler time discretization of the BSDE with certain conditional expectations expressed in terms of Fourier transforms and computed using the fast Fourier transform (FFT). The problem of error control is addressed and a local error analysis is provided. We consider the extension of the method to forward-backward stochastic differential equations (FBSDEs) and reflected FBSDEs. Numerical examples are considered from finance demonstrating the performance of the method.

Keywords: Backward Stochastic Differential Equations (BSDEs); Reflected BSDEs; Fast Fourier transform; Parabolic PDE; Numerical approximation; Option valuation; Primary 60H10, 65C30; Secondary 60H30 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s11009-015-9449-4 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:metcap:v:19:y:2017:i:1:d:10.1007_s11009-015-9449-4

Ordering information: This journal article can be ordered from
https://www.springer.com/journal/11009

DOI: 10.1007/s11009-015-9449-4

Access Statistics for this article

Methodology and Computing in Applied Probability is currently edited by Joseph Glaz

More articles in Methodology and Computing in Applied Probability from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().