Isogeometric Analysis for the Pricing of Financial Derivatives with Nonlinear Models: Convertible Bonds and Options

Rakhymzhan Kazbek, Yogi Erlangga, Yerlan Amanbek and Dongming Wei

Papers from arXiv.org

Abstract: Computational efficiency is essential for enhancing the accuracy and practicality of pricing complex financial derivatives. In this paper, we discuss Isogeometric Analysis (IGA) for valuing financial derivatives, modeled by two nonlinear Black-Scholes PDEs: the Leland model for European call with transaction costs and the AFV model for convertible bonds with default options. We compare the solutions of IGA with finite difference methods (FDM) and finite element methods (FEM). In particular, very accurate solutions can be numerically calculated on far less mesh (knots) than FDM or FEM, by using non-uniform knots and weighted cubic NURBS, which in turn reduces the computational time significantly.

Date: 2024-12
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2412.08987 Latest version (application/pdf)

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:arx:papers:2412.08987

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().