Review of modern numerical methods for a simple vanilla option pricing problem

Option pricing is a very attractive issue of financial engineering and optimization. The problem of determining the fair price of an option arises from the assumptions made under a given financial market model. The increasing complexity of these market assumptions contributes to the popularity of the numerical treatment of option valuation. Therefore, the pricing and hedging of plain vanilla options under the Black–Scholes model usually serve as a bench-mark for the development of new numerical pricing approaches and methods designed for advanced option pricing models. The objective of the paper is to present and compare the methodological concepts for the valuation of simple vanilla options using the relatively modern numerical techniques in this issue which arise from the discontinuous Galerkin method, the wavelet approach and the fuzzy transform technique. A theoretical comparison is accompanied by an empirical study based on the numerical verification of simple vanilla option prices. The resulting numerical schemes represent a particularly effective option pricing tool that enables some features of options that are depend-ent on the discretization of the computational domain as well as the order of the polynomial approximation to be captured better

Status of the differential transformation method

Further to a recent controversy on whether the differential transformation method (DTM) for solving a differential equation is purely and solely the traditional Taylor series method, it is emphasized that the DTM is currently used, often only, as a technique for (analytically) calculating the power series of the solution (in terms of the initial value parameters). Sometimes, a piecewise analytic continuation process is implemented either in a numerical routine (e.g., within a shooting method) or in a semi-analytical procedure (e.g., to solve a boundary value problem). Emphasized also is the fact that, at the time of its invention, the currently-used basic ingredients of the DTM (that transform a differential equation into a difference equation of same order that is iteratively solvable) were already known for a long time by the "traditional"-Taylor-method users (notably in the elaboration of software packages --numerical routines-- for automatically solving ordinary differential equations). At now, the defenders of the DTM still ignore the, though much better developed, studies of the "traditional"-Taylor-method users who, in turn, seem to ignore similarly the existence of the DTM. The DTM has been given an apparent strong formalization (set on the same footing as the Fourier, Laplace or Mellin transformations). Though often used trivially, it is easily attainable and easily adaptable to different kinds of differentiation procedures. That has made it very attractive. Hence applications to various problems of the Taylor method, and more generally of the power series method (including noninteger powers) has been sketched. It seems that its potential has not been exploited as it could be. After a discussion on the reasons of the "misunderstandings" which have caused the controversy, the preceding topics are concretely illustrated.Comment: To appear in Applied Mathematics and Computation, 29 pages, references and further considerations adde

Fuzzy Fluid Mechanics in Three Dimensions

We introduce a rotation invariant short distance cut-off in the theory of an ideal fluid in three space dimensions, by requiring momenta to take values in a sphere. This leads to an algebra of functions in position space is non-commutative. Nevertheless it is possible to find appropriate analogues of the Euler equations of an ideal fluid. The system still has a hamiltonian structure. It is hoped that this will be useful in the study of possible singularities in the evolution of Euler (or Navier-Stokes) equations in three dimensions.Comment: Additional reference

Physical states in the canonical tensor model from the perspective of random tensor networks

Tensor models, generalization of matrix models, are studied aiming for quantum gravity in dimensions larger than two. Among them, the canonical tensor model is formulated as a totally constrained system with first-class constraints, the algebra of which resembles the Dirac algebra of general relativity. When quantized, the physical states are defined to be vanished by the quantized constraints. In explicit representations, the constraint equations are a set of partial differential equations for the physical wave-functions, which do not seem straightforward to be solved due to their non-linear character. In this paper, after providing some explicit solutions for $N=2,3$, we show that certain scale-free integration of partition functions of statistical systems on random networks (or random tensor networks more generally) provides a series of solutions for general $N$. Then, by generalizing this form, we also obtain various solutions for general $N$. Moreover, we show that the solutions for the cases with a cosmological constant can be obtained from those with no cosmological constant for increased $N$. This would imply the interesting possibility that a cosmological constant can always be absorbed into the dynamics and is not an input parameter in the canonical tensor model. We also observe the possibility of symmetry enhancement in $N=3$, and comment on an extension of Airy function related to the solutions.Comment: 41 pages, 1 figure; typos correcte

The Hyperdimensional Transform: a Holographic Representation of Functions

Integral transforms are invaluable mathematical tools to map functions into spaces where they are easier to characterize. We introduce the hyperdimensional transform as a new kind of integral transform. It converts square-integrable functions into noise-robust, holographic, high-dimensional representations called hyperdimensional vectors. The central idea is to approximate a function by a linear combination of random functions. We formally introduce a set of stochastic, orthogonal basis functions and define the hyperdimensional transform and its inverse. We discuss general transform-related properties such as its uniqueness, approximation properties of the inverse transform, and the representation of integrals and derivatives. The hyperdimensional transform offers a powerful, flexible framework that connects closely with other integral transforms, such as the Fourier, Laplace, and fuzzy transforms. Moreover, it provides theoretical foundations and new insights for the field of hyperdimensional computing, a computing paradigm that is rapidly gaining attention for efficient and explainable machine learning algorithms, with potential applications in statistical modelling and machine learning. In addition, we provide straightforward and easily understandable code, which can function as a tutorial and allows for the reproduction of the demonstrated examples, from computing the transform to solving differential equations

Applying VIM to conformable partial differential equations

In this paper, we used new conformable variational iteration method, by the conformable derivative, for solving fractional heat-like and wave-like equations. This method is simple and very effective in the solution procedures of the fractional partial differential equations that have complicated solutions with classical fractional derivative definitions like Caputo, Riemann-Liouville and etc. The results show that conformable variational iteration method is usable and convenient for the solution of fractional partial differential equations. Obtained results are compared to the exact solutions and their graphics are plotted to demonstrate efficiency and accuracy of the method.Publisher's Versio

A numerical solution for nonlinear heat transfer of fin problems using the Haar wavelet quasilinearization method

The aim of this paper is to study the new application of Haar wavelet quasilinearization method (HWQM) to solve one-dimensional nonlinear heat transfer of fin problems. Three different types of nonlinear problems are numerically treated and the HWQM solutions are compared with those of the other method. The effects of temperature distribution of a straight fin with temperature-dependent thermal conductivity in the presence of various parameters related to nonlinear boundary value problems are analyzed and discussed. Numerical results of HWQM gives excellent numerical results in terms of competitiveness and accuracy compared to other numerical methods. This method was proven to be stable, convergent and, easily coded

Analytical and Numerical Methods for Differential Equations and Applications

The book is a printed version of the Special issue Analytical and Numerical Methods for Differential Equations and Applications, published in Frontiers in Applied Mathematics and Statistic