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Adaptive finite differences to price European options under the Bates model
Uppsala University, Disciplinary Domain of Science and Technology, Mathematics and Computer Science, Department of Information Technology.
2013 (English)Independent thesis Advanced level (degree of Master (One Year)), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

This thesis presents the pricing of European options under the Bates model, using adaptivity in order to efficiently distribute the grid points in space. For a fixed number of grid points the size of the absolute error, when using the adaptive approach, is reduced compared to the corresponding equidistant grid. Since the adaptive method needs less grid points for a certain error, the linear system of equations that needs to be solved becomes smaller and the memory costs are reduced. The implementation does not rest upon heavy optimization or parallelization theory, but nevertheless it solves the problem flawlessly and the adaptive method outperforms the equidistant method regarding computational time when keeping the error at a predefined level.

Place, publisher, year, edition, pages
IT, 13 063
National Category
Engineering and Technology
URN: urn:nbn:se:uu:diva-206899OAI: oai:DiVA.org:uu-206899DiVA: diva2:646051
Educational program
Freestanding course
Available from: 2013-09-06 Created: 2013-09-06 Last updated: 2013-12-02Bibliographically approved

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