A Penalty Method for the Numerical Solution of Hamilton-Jacobi-Bellman (HJB) Equations in Finance

We present a simple and easy to implement method for the numerical solution of a rather general class of Hamilton-Jacobi-Bellman (HJB) equations. In many cases, the considered problems have only a viscosity solution, to which, fortunately, many intuitive (e.g. finite difference based) discretisations can be shown to converge. However, especially when using fully implicit time stepping schemes with their desirable stability properties, one is still faced with the considerable task of solving the resulting nonlinear discrete system. In this paper, we introduce a penalty method which approximates the nonlinear discrete system to first order in the penalty parameter, and we show that an iterative scheme can be used to solve the penalised discrete problem in finitely many steps. We include a number of examples from mathematical finance for which the described approach yields a rigorous numerical scheme and present numerical results.Comment: 18 Pages, 4 Figures. This updated version has a slightly more detailed introduction. In the current form, the paper will appear in SIAM Journal on Numerical Analysi

Development of iterative techniques for the solution of unsteady compressible viscous flows

Efficient iterative solution methods are being developed for the numerical solution of two- and three-dimensional compressible Navier-Stokes equations. Iterative time marching methods have several advantages over classical multi-step explicit time marching schemes, and non-iterative implicit time marching schemes. Iterative schemes have better stability characteristics than non-iterative explicit and implicit schemes. Thus, the extra work required by iterative schemes can also be designed to perform efficiently on current and future generation scalable, missively parallel machines. An obvious candidate for iteratively solving the system of coupled nonlinear algebraic equations arising in CFD applications is the Newton method. Newton's method was implemented in existing finite difference and finite volume methods. Depending on the complexity of the problem, the number of Newton iterations needed per step to solve the discretized system of equations can, however, vary dramatically from a few to several hundred. Another popular approach based on the classical conjugate gradient method, known as the GMRES (Generalized Minimum Residual) algorithm is investigated. The GMRES algorithm was used in the past by a number of researchers for solving steady viscous and inviscid flow problems with considerable success. Here, the suitability of this algorithm is investigated for solving the system of nonlinear equations that arise in unsteady Navier-Stokes solvers at each time step. Unlike the Newton method which attempts to drive the error in the solution at each and every node down to zero, the GMRES algorithm only seeks to minimize the L2 norm of the error. In the GMRES algorithm the changes in the flow properties from one time step to the next are assumed to be the sum of a set of orthogonal vectors. By choosing the number of vectors to a reasonably small value N (between 5 and 20) the work required for advancing the solution from one time step to the next may be kept to (N+1) times that of a noniterative scheme. Many of the operations required by the GMRES algorithm such as matrix-vector multiplies, matrix additions and subtractions can all be vectorized and parallelized efficiently

A primal-dual approach for solving conservation laws with implicit in time approximations

In this work, we propose a novel framework for the numerical solution of time-dependent conservation laws with implicit schemes via primal-dual hybrid gradient methods. We solve an initial value problem (IVP) for the partial differential equation (PDE) by casting it as a saddle point of a min-max problem and using iterative optimization methods to find the saddle point. Our approach is flexible with the choice of both time and spatial discretization schemes. It benefits from the implicit structure and gains large regions of stability, and overcomes the restriction on the mesh size in time by explicit schemes from Courant--Friedrichs--Lewy (CFL) conditions (really via von Neumann stability analysis). Nevertheless, it is highly parallelizable and easy-to-implement. In particular, no nonlinear inversions are required! Specifically, we illustrate our approach using the finite difference scheme and discontinuous Galerkin method for the spatial scheme; backward Euler and backward differentiation formulas for implicit discretization in time. Numerical experiments illustrate the effectiveness and robustness of the approach. In future work, we will demonstrate that our idea of replacing an initial-value evolution equation with this primal-dual hybrid gradient approach has great advantages in many other situations

APPLICATION OF DIFFERENTIAL TRANSFORMATION METHOD FOR SOLVING HIV MODEL WITH ANTI-VIRAL TREATMENT

Mathematical models have been widely used to understand complex phenomena. Generally, the model is in the form of system of differential equations. However, when the model becomes complex, analytical solutions are not easily used and hence a numerical approach has been used. A number of numerical schemes such as Euler, Runge-Kutta, and Finite Difference Scheme are generally used. There are also alternative numerical methods that can be used to solve system of differential equations such as the nonstandard finite difference scheme (NSFDS), the Adomian decomposition method (ADM), Variation iteration method (VIM), and the differential transformation method (DTM). In this paper, we apply the differential transformation method (DTM)  to solve system of differential equations. The DTM is semi-analytical numerical technique to solve the system of differential equations and provides an iterative procedure to obtain the power series of the solution in terms of initial value parameters. In this paper, we present a mathematical model of HIV with antiviral treatment and construct a numerical scheme based on the differential transformation method (DTM) for solving the model. The results are compared to that of Runge-Kutta method. We find a good agreement of the DTM and the Runge-Kutta method for smaller time step but it fails in the large time ste

On the false-diffusion problem in the numerical modelling of convection-diffusion processes

This thesis is concerned with the classification and evaluation of various numerical schemes that are available for computing solutions for fluid-flow problems, and secondly, with the development of an improved numerical discretisation scheme of the finite-volume type for solving steady-state differential equations for recirculating flows with and without sources. In an effort to evaluate the performance of the various numerical schemes available, some standard test cases were used. The relative merits of the schemes were assessed by means of one-dimensional laminar flows and two-dimensional laminar and turbulent flows, with and without sources. Furthermore, Taylor series expansion analysis was also utilised to examine the limitations that were present. The outcome of this first part of the work was a set of conclusions, concerning the accuracy of the numerous schemes tests, vis-a-vis their stability, ease of implementation, and computational costs. It is hoped that these conclusions can be used by `computational fluid-dynamics' practitioners in deciding on an optimum choice of scheme for their particular problem. From the understanding gained during the first part of the study, and in an effort to combine the attributes of a successful discretisation scheme, eg positive coefficients. conservation and the elimination of 'false-diffusion', a new flow-oriented finite-volume numerical scheme was devised and applied to several test cases in order to evaluate its performance. The novel approach in formulating the new CUPID* scheme (for Corner UPw^nDing) underlines the idea of focussing attention at the control-volume corners rather than at the control-volume cell-faces. In two-dimensions, this leads to an eight neighbour influence for the central grid point value, depending on the flow-directions at the corners of the control-volume. In the formulation of the new scheme, false-diffusion is considered from a pragmatic perspective, with emphasis on physics rather than on strict mathematical considerations such as the order of discretisation, etc. The accuracy of the UPSTREAM scheme (for JJPwind in STREAMIines) indicates that although it is formally only first-order accurate, it considerably reduces 'false-diffusion'. Scalar transport calculations (without sources) show that the UPSTREAM scheme predicts bounded solutions which are more accurate than the upwind-difference scheme and the unbounded skew-upstream-difference scheme. Furthermore, for laminar and turbulent flow calculations, improved results are obtained when compared with the performances of the other schemes. The advantage of the UPSTREAM-difference scheme is that all the influence coefficients are always positive and thus the coefficient matrices are suitable for iterative solution procedures. Finally, the stability and convergence characteristics are similar to those of the upwind-difference scheme, eg converged solutions are guaranteed. What cannot be guaranteed, however, is the conservatism of the scheme and it is recommended that future work should be directed towards improving that disadvantage