On coordinate transformation and grid stretching for sparse grid pricing of basket options

C. C.W. Leentvaar; C. W. Oosterlee

doi:10.1016/j.cam.2007.10.015

On coordinate transformation and grid stretching for sparse grid pricing of basket options

C. C.W. Leentvaar
, C. W. Oosterlee^*

^*Corresponding author for this work

Delft University of Technology
extern

Research output: Contribution to journal › Article › Academic › peer-review

Abstract

We evaluate two coordinate transformation techniques in combination with grid stretching for pricing basket options in a sparse grid setting. The sparse grid technique is a basic technique for solving a high-dimensional partial differential equation. By creating a small hypercube sub-grid in the 'composite' sparse grid we can also determine hedge parameters accurately. We evaluate these techniques for multi-asset examples with up to five underlying assets in the basket.

Original language	English
Pages (from-to)	193-209
Number of pages	17
Journal	Journal of Computational and Applied Mathematics
Volume	222
Issue number	1
DOIs	https://doi.org/10.1016/j.cam.2007.10.015
Publication status	Published - 1 Dec 2008
Externally published	Yes

Bibliographical note

Funding Information:
The first author wants to thank the Dutch Technology Foundation STW for financial support.

Funding

The first author wants to thank the Dutch Technology Foundation STW for financial support.

Keywords

Coordinate transformation
Multi-asset options
Option pricing
Sparse grids

Access to Document

10.1016/j.cam.2007.10.015

Cite this

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title = "On coordinate transformation and grid stretching for sparse grid pricing of basket options",

abstract = "We evaluate two coordinate transformation techniques in combination with grid stretching for pricing basket options in a sparse grid setting. The sparse grid technique is a basic technique for solving a high-dimensional partial differential equation. By creating a small hypercube sub-grid in the 'composite' sparse grid we can also determine hedge parameters accurately. We evaluate these techniques for multi-asset examples with up to five underlying assets in the basket.",

keywords = "Coordinate transformation, Multi-asset options, Option pricing, Sparse grids",

author = "Leentvaar, \{C. C.W.\} and Oosterlee, \{C. W.\}",

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PY - 2008/12/1

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N2 - We evaluate two coordinate transformation techniques in combination with grid stretching for pricing basket options in a sparse grid setting. The sparse grid technique is a basic technique for solving a high-dimensional partial differential equation. By creating a small hypercube sub-grid in the 'composite' sparse grid we can also determine hedge parameters accurately. We evaluate these techniques for multi-asset examples with up to five underlying assets in the basket.

AB - We evaluate two coordinate transformation techniques in combination with grid stretching for pricing basket options in a sparse grid setting. The sparse grid technique is a basic technique for solving a high-dimensional partial differential equation. By creating a small hypercube sub-grid in the 'composite' sparse grid we can also determine hedge parameters accurately. We evaluate these techniques for multi-asset examples with up to five underlying assets in the basket.

KW - Coordinate transformation

KW - Multi-asset options

KW - Option pricing

KW - Sparse grids

UR - https://www.scopus.com/pages/publications/52949103001

U2 - 10.1016/j.cam.2007.10.015

DO - 10.1016/j.cam.2007.10.015

M3 - Article

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ER -

On coordinate transformation and grid stretching for sparse grid pricing of basket options

Abstract

Bibliographical note

Funding

Keywords

Access to Document

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