Open AccessDISCRETIZATION PROCESSING OF FINANCIAL RISK MANAGEMENT USING STOCHASTIC DIFFERENTIAL EQUATION SIMULATION METHOD
Author(s) -
Qi Liu,
Alaa O. Khadidos,
Pengbo Wan
Publication year - 2022
Publication title -
fractals
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.654
H-Index - 44
eISSN - 1793-6543
pISSN - 0218-348X
DOI - 10.1142/s0218348x22400692
Subject(s) - stochastic differential equation , discretization , computer science , risk management , valuation of options , differential equation , financial modeling , mathematical finance , matlab , finance , mathematical optimization , mathematics , economics , mathematical analysis , operating system
The purposes of this paper are to improve the scientific processing level of risk management in the financial field, enrich the application range of mathematical models in financial calculations, and comprehensively discuss the theories and concepts of mathematical finance and stochastic differential equations. More importantly, the common option pricing issues in financial risk management have been researched using the forward–backward stochastic differential equation. The fully discrete and uncoupled forward–backward stochastic differential equation is employed to analyze the spread option and the better-of option, the complicated multi-asset options. Results demonstrate that the fully discrete and uncoupled forward–backward stochastic differential equations can effectively price the spread option and the better-of option. Simulation by the MATLAB software suggests that the value of spread option pricing is 0.0264, and the value of the better-of option pricing is 0.0251. The above results can provide scientific and useful references for the subsequent application research on forward–backward stochastic differential equations in the financial field; simultaneously, they also have important practical significance for researching on and developing the financial risk management.