A front-fixing ETD numerical method for solving jump–diffusion American option pricing problems

Company Rossi, Rafael; Egorova, Vera; Jódar Sánchez, Lucas

doi:10.1016/j.matcom.2020.07.015

dc.contributor.author	Company Rossi, Rafael
dc.contributor.author	Egorova, Vera
dc.contributor.author	Jódar Sánchez, Lucas
dc.contributor.other	Universidad de Cantabria	es_ES
dc.date.accessioned	2021-10-13T06:29:23Z
dc.date.available	2023-11-30T02:17:44Z
dc.date.issued	2021-11
dc.identifier.issn	0378-4754
dc.identifier.issn	1872-7166
dc.identifier.other	MTM2017-89664-P	es_ES
dc.identifier.uri	http://hdl.handle.net/10902/22731
dc.description.abstract	American options prices under jump-diffusion models are determined by a free boundary partial integro-differential equation (PIDE) problem. In this paper, we propose a front-fixing exponential time differencing (FF-ETD) method composed of several steps. First, the free boundary is included into equation by applying the front-fixing transformation. Second, the resulting nonlinear PIDE is semi-discretized, that leads to a system of ordinary differential equations (ODEs). Third, a numerical solution of the system is constructed by using exponential time differencing (ETD) method and matrix quadrature rules. Finally, numerical analysis is provided to establish empirical stability conditions on step sizes. Numerical results show the efficiency and competitiveness of the FF-ETD method.	es_ES
dc.description.sponsorship	This work has been partially supported by the Ministerio de Ciencia, Innovación y Universidades, Spanish grant MTM2017-89664-P	es_ES
dc.format.extent	30 p.	es_ES
dc.language.iso	eng	es_ES
dc.publisher	Elsevier	es_ES
dc.rights	© 2020. This manuscript version is made available under the CC-BY-NC-ND 4.0	es_ES
dc.rights.uri	http://creativecommons.org/licenses/by-nc-nd/4.0/	*
dc.source	Mathematics and Computers in Simulation, 2021, 189, 69-84	es_ES
dc.subject.other	American option pricing	es_ES
dc.subject.other	Front-fixing method	es_ES
dc.subject.other	Exponential time differencing	es_ES
dc.subject.other	Finite difference methods	es_ES
dc.subject.other	Experimental numerical analysis	es_ES
dc.subject.other	Gauss quadrature	es_ES
dc.title	A front-fixing ETD numerical method for solving jump–diffusion American option pricing problems	es_ES
dc.type	info:eu-repo/semantics/article	es_ES
dc.relation.publisherVersion	https://doi.org/10.1016/j.matcom.2020.07.015	es_ES
dc.rights.accessRights	openAccess	es_ES
dc.identifier.DOI	10.1016/j.matcom.2020.07.015
dc.type.version	acceptedVersion	es_ES