Option Pricing under the Kou Jump-Diffusion Model: a DG Approach

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dc.contributor.authorHozman, Jiří
dc.contributor.authorTichý, Tomáš
dc.date.accessioned2020-04-22T08:01:05Z
dc.date.available2020-04-22T08:01:05Z
dc.date.issued2019
dc.description.abstractMore empiricism in modelling of option contracts is obtained when the jump-diffusion models are employed. Such models extend the standard Black-Scholes framework by adding jumps to the dynamics of underlying asset prices and enable to describe large and sudden changes in the underlying. The paper is devoted to the discontinuous Galerkin method applied to European option pricing under the Kou model where jump sizes are double exponentially distributed. The pricing function satisfies a partial integro-differential equation, which involves both integrals and derivatives of an unknown option value function. With a localization to a bounded spatial domain, the governing equation is discretized by the discontinuous Galerkin method over a finite element mesh and it is integrated in temporal variable by a semi-implicit Euler scheme, where the differential part is treated implicitly while the integral one explicitly by the composite trapezoidal rule. This approach thus leads to a sparse linear algebraic system at each time level. Finally, numerical results demonstrate the capability of the scheme presented within the reference benchmarks.cs
dc.format.extent9 strancs
dc.identifier.doi10.1063/1.5133547
dc.identifier.orcid0000-0003-3871-5610 Hozman, Jiří
dc.identifier.urihttps://dspace.tul.cz/handle/15240/154746
dc.identifier.urihttps://aip.scitation.org/doi/10.1063/1.5133547
dc.language.isocscs
dc.publisherAMER INST PHYSICS, 2 HUNTINGTON QUADRANGLE, STE 1NO1, MELVILLE, NY 11747-4501 USA
dc.relation.ispartofPROCEEDINGS OF THE 45TH INTERNATIONAL CONFERENCE ON APPLICATION OF MATHEMATICS IN ENGINEERING AND ECONOMICS (AMEE'19)
dc.relation.ispartofseriesAIP Conference Proceedings
dc.titleOption Pricing under the Kou Jump-Diffusion Model: a DG Approachcs
dc.typeProceedings Paper
local.article.number70011
local.event.edate2019-06-13
local.event.locationSozopol, BULGARIA
local.event.sdate2019-06-07
local.event.title45th International Conference on Application of Mathematics in Engineering and Economics (AMEE)
local.relation.volume2172
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