A fixed point method for the linear complementarity problem arising from american option pricing

详细信息    查看全文

• 作者：Xian-Jun Shi ; Lei Yang ; Zheng-Hai Huang
• 关键词：American option pricing ; finite difference method ; fixed point method ; linear complementarity problem
• 刊名：Acta Mathematicae Applicatae Sinica, English Series
• 出版年：2016
• 出版时间：October 2016
• 年：2016
• 卷：32
• 期：4
• 页码：921-932
• 全文大小：236 KB
• 刊物主题：Applications of Mathematics; Math Applications in Computer Science; Theoretical, Mathematical and Computational Physics;
• 出版者：Institute of Applied Mathematics, Chinese Academy of Sciences and Chinese Mathematical Society
• ISSN：1618-3932
• 卷排序：32

文摘

For American option pricing, the Black-Scholes-Merton model can be discretized as a linear complementarity problem (LCP) by using some finite difference schemes. It is well known that the Projected Successive Over Relaxation (PSOR) has been widely applied to solve the resulted LCP. In this paper, we propose a fixed point iterative method to solve this type of LCPs, where the splitting technique of the matrix is used. We show that the proposed method is globally convergent under mild assumptions. The preliminary numerical results are reported, which demonstrate that the proposed method is more accurate than the PSOR for the problems we tested.