Pricing Financial Derivatives using Radial Basis Function generated Finite Differences with Polyharmonic Splines on Smoothly Varying Node Layouts

In this paper, we study the benefits of using polyharmonic splines and node layouts with smoothly varying density for developing robust and efficient radial basis function generated finite difference (RBF-FD) methods for pricing of financial derivatives. We present a significantly improved RBF-FD scheme and successfully apply it to two types of multidimensional partial differential equations in finance: a two-asset European call basket option under the Black--Scholes--Merton model, and a European call option under the Heston model. We also show that the performance of the improved method is equally high when it comes to pricing American options. By studying convergence, computational performance, and conditioning of the discrete systems, we show the superiority of the introduced approaches over previously used versions of the RBF-FD method in financial applications

A stabilized radial basis-finite difference (RBF-FD) method with hybrid kernels

Recent developments have made it possible to overcome grid-based limitations of finite difference (FD) methods by adopting the kernel-based meshless framework using radial basis functions (RBFs). Such an approach provides a meshless implementation and is referred to as the radial basis-generated finite difference (RBF-FD) method. In this paper, we propose a stabilized RBF-FD approach with a hybrid kernel, generated through a hybridization of the Gaussian and cubic RBF. This hybrid kernel was found to improve the condition of the system matrix, consequently, the linear system can be solved with direct solvers which leads to a significant reduction in the computational cost as compared to standard RBF-FD methods coupled with present stable algorithms. Unlike other RBF-FD approaches, the eigenvalue spectra of differentiation matrices were found to be stable irrespective of irregularity, and the size of the stencils. As an application, we solve the frequency-domain acoustic wave equation in a 2D half-space. In order to suppress spurious reflections from truncated computational boundaries, absorbing boundary conditions have been effectively implemented.Comment: 22 pages, 14 figures, Accepted for Computer and Mathematics with Application

A Guide to RBF-Generated Finite Differences for Nonlinear Transport: Shallow Water Simulations on a Sphere

The current paper establishes the computational efficiency and accuracy of the RBF-FD method for large-scale geoscience modeling with comparisons to state-of-the-art methods as high-order discontinuous Galerkin and spherical harmonics, the latter using expansions with close to 300,000 bases. The test cases are demanding fluid flow problems on the sphere that exhibit numerical challenges, such as Gibbs phenomena, sharp gradients, and complex vortical dynamics with rapid energy transfer from large to small scales over short time periods. The computations were possible as well as very competitive due to the implementation of hyperviscosity on large RBF stencil sizes (corresponding roughly to 6th to 9th order methods) with up to O(105) nodes on the sphere. The RBF-FD method scaled as O(N) per time step, where N is the total number of nodes on the sphere. In Appendix A, guidelines are given on how to chose parameters when using RBF-FD to solve hyperbolic PDEs