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

The design of conservative finite element discretisations for the vectorial modified KdV equation

We design a consistent Galerkin scheme for the approximation of the vectorial modified Korteweg-de Vries equation. We demonstrate that the scheme conserves energy up to machine precision. In this sense the method is consistent with the energy balance of the continuous system. This energy balance ensures there is no numerical dissipation allowing for extremely accurate long time simulations free from numerical artifacts. Various numerical experiments are shown demonstrating the asymptotic convergence of the method with respect to the discretisation parameters. Some simulations are also presented that correctly capture the unusual interactions between solitons in the vectorial setting

Theoretical and numerical comparison of hyperelastic and hypoelastic formulations for Eulerian non-linear elastoplasticity

The aim of this paper is to compare a hyperelastic with a hypoelastic model describing the Eulerian dynamics of solids in the context of non-linear elastoplastic deformations. Specifically, we consider the well-known hypoelastic Wilkins model, which is compared against a hyperelastic model based on the work of Godunov and Romenski. First, we discuss some general conceptual differences between the two approaches. Second, a detailed study of both models is proposed, where differences are made evident at the aid of deriving a hypoelastic-type model corresponding to the hyperelastic model and a particular equation of state used in this paper. Third, using the same high order ADER Finite Volume and Discontinuous Galerkin methods on fixed and moving unstructured meshes for both models, a wide range of numerical benchmark test problems has been solved. The numerical solutions obtained for the two different models are directly compared with each other. For small elastic deformations, the two models produce very similar solutions that are close to each other. However, if large elastic or elastoplastic deformations occur, the solutions present larger differences.Comment: 14 figure

Krylov implicit integration factor discontinuous Galerkin methods on sparse grids for high dimensional reaction-diffusion equations

Computational costs of numerically solving multidimensional partial differential equations (PDEs) increase significantly when the spatial dimensions of the PDEs are high, due to large number of spatial grid points. For multidimensional reaction-diffusion equations, stiffness of the system provides additional challenges for achieving efficient numerical simulations. In this paper, we propose a class of Krylov implicit integration factor (IIF) discontinuous Galerkin (DG) methods on sparse grids to solve reaction-diffusion equations on high spatial dimensions. The key ingredient of spatial DG discretization is the multiwavelet bases on nested sparse grids, which can significantly reduce the numbers of degrees of freedom. To deal with the stiffness of the DG spatial operator in discretizing reaction-diffusion equations, we apply the efficient IIF time discretization methods, which are a class of exponential integrators. Krylov subspace approximations are used to evaluate the large size matrix exponentials resulting from IIF schemes for solving PDEs on high spatial dimensions. Stability and error analysis for the semi-discrete scheme are performed. Numerical examples of both scalar equations and systems in two and three spatial dimensions are provided to demonstrate the accuracy and efficiency of the methods. The stiffness of the reaction-diffusion equations is resolved well and large time step size computations are obtained

Gr\"obner Bases and Generation of Difference Schemes for Partial Differential Equations

In this paper we present an algorithmic approach to the generation of fully conservative difference schemes for linear partial differential equations. The approach is based on enlargement of the equations in their integral conservation law form by extra integral relations between unknown functions and their derivatives, and on discretization of the obtained system. The structure of the discrete system depends on numerical approximation methods for the integrals occurring in the enlarged system. As a result of the discretization, a system of linear polynomial difference equations is derived for the unknown functions and their partial derivatives. A difference scheme is constructed by elimination of all the partial derivatives. The elimination can be achieved by selecting a proper elimination ranking and by computing a Gr\"obner basis of the linear difference ideal generated by the polynomials in the discrete system. For these purposes we use the difference form of Janet-like Gr\"obner bases and their implementation in Maple. As illustration of the described methods and algorithms, we construct a number of difference schemes for Burgers and Falkowich-Karman equations and discuss their numerical properties.Comment: Published in SIGMA (Symmetry, Integrability and Geometry: Methods and Applications) at http://www.emis.de/journals/SIGMA