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Option pricing using multivariate Lévy processes
Author(s) -
Winter Christoph,
Reich Nils
Publication year - 2007
Publication title -
pamm
Language(s) - English
Resource type - Journals
ISSN - 1617-7061
DOI - 10.1002/pamm.200700389
Subject(s) - tensor product , discretization , bilinear interpolation , finite element method , multivariate statistics , mathematics , bilinear form , domain (mathematical analysis) , tensor (intrinsic definition) , mathematical economics , pure mathematics , mathematical analysis , physics , statistics , thermodynamics
For d ‐dimensional Lévy models we provide a method for Finite Element‐based asset pricing. We derive the partial integrodifferential pricing equation and prove that the corresponding variational problem is well‐posed. Hereto, an explicit characterization of the domain of the bilinear form is given. For the numerical implementation the problem is discretized by sparse tensor product Finite Element spaces. (© 2008 WILEY‐VCH Verlag GmbH & Co. KGaA, Weinheim)