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Polynomial programming approach to weak approximation of Lévy-driven stochastic differential equations with application to option pricing

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conference contribution
posted on 19.03.2012, 16:46 by Kenji Kashima, Reiichiro Kawai
We propose an optimization approach to weak approximation of Levy-driven stochastic differential equations. We employ a mathematical programming framework to obtain numerically upper and lower bound estimates of the target expectation, where the optimization procedure ends up with a polynomial programming problem. An advantage of our approach is that all we need is a closed form of the Levy measure, not the exact simulation knowledge of the increments or of a shot noise representation for the time discretization approximation. We present numerical examples of the computation of the moments, as well as the European call option premium, of the Doleacuteans-Dade exponential model.

History

Citation

ICCAS-SICE 2009, ICROS-SICE International Joint Conference 2009, Proceedings, 2009, pp. 3902-3907

Author affiliation

/Organisation/COLLEGE OF SCIENCE AND ENGINEERING/Department of Mathematics

Source

ICROS-SICE International Joint Conference, 2009, 18-21 August 2009, Fukuoka, Japan.

Version

AM (Accepted Manuscript)

Published in

ICCAS-SICE 2009

Publisher

Institute of Electrical and Electronics Engineers (IEEE)

isbn

978-4-907764-34-0;978-4-907764-33-3

Copyright date

2009

Available date

19/03/2012

Publisher version

http://ieeexplore.ieee.org/xpls/abs_all.jsp?arnumber=5333298&tag=1

Language

en

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