![](/images/graphics-bg.png)
Faber-Schauder Wavelet Sparse Grid Approach for Option Pricing with Transactions Cost
Author
Source
Issue
Vol. 2014, Issue 2014 (31 Dec. 2014), pp.1-9, 9 p.
Publisher
Hindawi Publishing Corporation
Publication Date
2014-04-28
Country of Publication
Egypt
No. of Pages
9
Main Subjects
Abstract EN
Transforming the nonlinear Black-Scholes equation into the diffusion PDE by introducing the log transform of S and (T−t)→τ can provide the most stable platform within which option prices can be evaluated.
The space jump that appeared in the transformation model is suitable to be solved by the sparse grid approach.
An adaptive sparse approximation solution of the nonlinear second-order PDEs was constructed using Faber-Schauder wavelet function and the corresponding multiscale analysis theory.
First, we construct the multiscale wavelet interpolation operator based on the definition of interpolation wavelet theory.
The operator can be used to discretize the weak solution function of the nonlinear second-order PDEs.
Second, using the couple technique of the variational iteration method (VIM) and the precision integration method, the sparse approximation solution of the nonlinear partial differential equations can be obtained.
The method is tested on three classical nonlinear option pricing models such as Leland model, Barles-Soner model, and risk adjusted pricing methodology.
The solutions are compared with the finite difference method.
The present results indicate that the method is competitive.
American Psychological Association (APA)
Mei, Shu-Li. 2014. Faber-Schauder Wavelet Sparse Grid Approach for Option Pricing with Transactions Cost. Abstract and Applied Analysis،Vol. 2014, no. 2014, pp.1-9.
https://search.emarefa.net/detail/BIM-1013396
Modern Language Association (MLA)
Mei, Shu-Li. Faber-Schauder Wavelet Sparse Grid Approach for Option Pricing with Transactions Cost. Abstract and Applied Analysis No. 2014 (2014), pp.1-9.
https://search.emarefa.net/detail/BIM-1013396
American Medical Association (AMA)
Mei, Shu-Li. Faber-Schauder Wavelet Sparse Grid Approach for Option Pricing with Transactions Cost. Abstract and Applied Analysis. 2014. Vol. 2014, no. 2014, pp.1-9.
https://search.emarefa.net/detail/BIM-1013396
Data Type
Journal Articles
Language
English
Notes
Includes bibliographical references
Record ID
BIM-1013396