Spline Cubatures for Expectations of Diffusion Processes and Optimal Stopping in Higher Dimensions (with Computational Finance in View)

Andrew Lyasoff ()
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Andrew Lyasoff: Boston University, Mathematical Finance Program

A chapter in Mathematical Control Theory and Finance, 2008, pp 265-291 from Springer

Abstract: Summary We develop certain cubature (quadrature) rules for expectations of diffusion processes in ℝ N that are analogous to the well known spline interpolation quadratures for ordinary integrals. By incorporating such rules in appropriate backward induction procedures, we develop new numerical algorithms for solving free-boundary (optimal stopping) problems, or ordinary fixed-boundary problems. The algorithms developed in the paper are directly applicable to pricing contingent claims of both American and European types on multiple underlying assets.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-540-69532-5_15

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DOI: 10.1007/978-3-540-69532-5_15

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