Pricing derivatives under Lévy models : modern finite-difference and pseudo-differential operators approach / by Andrey Itkin.

Format:

Book

Author/Creator:

Itkin, Andrey, Author.

Series:

Pseudo-Differential Operators, Theory and Applications, 2297-0355 ; 12

Language:

English

Subjects (All):

Economics, Mathematical.

Mathematical models.

Computer science--Mathematics.

Computer science.

Differential equations, Partial.

Quantitative Finance.

Mathematical Modeling and Industrial Mathematics.

Computational Science and Engineering.

Partial Differential Equations.

Local Subjects:

Quantitative Finance.

Mathematical Modeling and Industrial Mathematics.

Computational Science and Engineering.

Partial Differential Equations.

Physical Description:

1 online resource (XX, 308 p. 64 illus., 62 illus. in color.)

Edition:

1st ed. 2017.

Place of Publication:

New York, NY : Springer New York : Imprint: Birkhäuser, 2017.

Summary:

This monograph presents a novel numerical approach to solving partial integro-differential equations arising in asset pricing models with jumps, which greatly exceeds the efficiency of existing approaches. The method, based on pseudo-differential operators and several original contributions to the theory of finite-difference schemes, is new as applied to the Lévy processes in finance, and is herein presented for the first time in a single volume. The results within, developed in a series of research papers, are collected and arranged together with the necessary background material from Lévy processes, the modern theory of finite-difference schemes, the theory of M-matrices and EM-matrices, etc., thus forming a self-contained work that gives the reader a smooth introduction to the subject. For readers with no knowledge of finance, a short explanation of the main financial terms and notions used in the book is given in the glossary. The latter part of the book demonstrates the efficacy of the method by solving some typical problems encountered in computational finance, including structural default models with jumps, and local stochastic volatility models with stochastic interest rates and jumps. The author also adds extra complexity to the traditional statements of these problems by taking into account jumps in each stochastic component while all jumps are fully correlated, and shows how this setting can be efficiently addressed within the framework of the new method. Written for non-mathematicians, this book will appeal to financial engineers and analysts, econophysicists, and researchers in applied numerical analysis. It can also be used as an advance course on modern finite-difference methods or computational finance.

Contents:

Basics of a finite-difference method

Modern finite-difference approach

An M-matrix theory and FD

Brief Introduction into Lévy processes

Pseudo-parabolic and fractional equations of option pricing

Pseudo-parabolic equations for various Lévy models

High-order splitting methods for forward PDEs and PIDEs

Multi-dimensional structural default models and correlated jumps

LSV models with stochastic interest rates and correlated jumps

Stochastic skew model

Glossary

References

Index.

Notes:

Includes bibliographical references at the end of each chapters and index.

ISBN:

1-4939-6792-4