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Multigrid for American option pricing with stochastic volatility. (English) Zbl 1009.91034

Summary: The paper describes an implicit finite difference approach to the pricing of American options on assets with a stochastic volatility. A multigrid procedure is described for the fast iterative solution of the discrete linear complementarity problems that result. The accuracy and performance of this approach is improved considerably by a strike-price related analytic transformation of asset prices and adaptive time-stepping.

MSC:

91G20 Derivative securities (option pricing, hedging, etc.)
90C33 Complementarity and equilibrium problems and variational inequalities (finite dimensions) (aspects of mathematical programming)

Software:

Wesseling
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References:

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