Pricing European and American Options under Heston Model using Discontinuous Galerkin Finite Elements

This paper deals with pricing of European and American options, when the underlying asset price follows Heston model, via the interior penalty discontinuous Galerkin finite element method (dGFEM). The advantages of dGFEM space discretization with Rannacher smoothing as time integrator with nonsmooth initial and boundary conditions are illustrated for European vanilla options, digital call and American put options. The convection dominated Heston model for vanishing volatility is efficiently solved utilizing the adaptive dGFEM. For fast solution of the linear complementary problem of the American options, a projected successive over relaxation (PSOR) method is developed with the norm preconditioned dGFEM. We show the efficiency and accuracy of dGFEM for option pricing by conducting comparison analysis with other methods and numerical experiments

Robust error estimates in weak norms for advection dominated transport problems with rough data

We consider mixing problems in the form of transient convection--diffusion equations with a velocity vector field with multiscale character and rough data. We assume that the velocity field has two scales, a coarse scale with slow spatial variation, which is responsible for advective transport and a fine scale with small amplitude that contributes to the mixing. For this problem we consider the estimation of filtered error quantities for solutions computed using a finite element method with symmetric stabilization. A posteriori error estimates and a priori error estimates are derived using the multiscale decomposition of the advective velocity to improve stability. All estimates are independent both of the P\'eclet number and of the regularity of the exact solution

Shock capturing techniques for hp-adaptive finite elements

The aim of this work is to propose an hp-adaptive algorithm for discontinuous Galerkin methods that is capable to detect the discontinuities and sharp layers and avoid the spurious oscillation of the solution around them. In order to control the spurious oscillations, artificial viscosity is used with the particularity that it is only applied around the layers where the solution changes abruptly. To do so, a novel troubled-cell detector has been developed in order to mark the elements around those layers and to impose linear order in them. The detector takes advantage of the evolution of the value of the gradient through the adaptive process.Peer ReviewedPostprint (published version