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Chebyshev interpolation for parametric option pricing. (English) Zbl 1402.91782
Summary: Recurrent tasks such as pricing, calibration and risk assessment need to be executed accurately and in real time. We concentrate on parametric option pricing (POP) as a generic instance of parametric conditional expectations and show that polynomial interpolation in the parameter space promises to considerably reduce run-times while maintaining accuracy. The attractive properties of Chebyshev interpolation and its tensorized extension enable us to identify broadly applicable criteria for (sub)exponential convergence and explicit error bounds. The method is most promising when the computation of the prices is most challenging. We therefore investigate its combination with Monte Carlo simulation and analyze the effect of (stochastic) approximations of the interpolation. For a wide and important range of problems, the Chebyshev method turns out to be more efficient than parametric multilevel Monte Carlo. We conclude with a numerical efficiency study.

MSC:
91G20 Derivative securities (option pricing, hedging, etc.)
91G60 Numerical methods (including Monte Carlo methods)
41A10 Approximation by polynomials
Software:
Chebfun
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References:
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