A mixed derivative terms removing method in multi-asset option pricing problems

The challenge of removing the mixed derivative terms of a second order multidimensional partial differential equation is addressed in this paper. The proposed method, which is based on proper algebraic factorization of the so-called diffusion matrix, depends on the semidefinite or indefinite charact...

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Bibliographic Details
Published inApplied mathematics letters Vol. 60; pp. 108 - 114
Main Authors Company, R., Egorova, V.N., Jódar, L., Soleymani, F.
Format Journal Article
LanguageEnglish
Published Elsevier Ltd 01.10.2016
Subjects
[formula omitted] factorization
Algebra
Bunch–Kaufman factorization
Computational efficiency
Derivatives
Diffusion
Factorization
Mathematical analysis
Mathematical models
Mixed derivative terms
Multiasset option pricing
Multidimensional partial differential equations
Pricing
LDLT factorization
Multiasset option pricing
Bunch–Kaufman factorization
Mixed derivative terms
Multidimensional partial differential equations
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Summary:The challenge of removing the mixed derivative terms of a second order multidimensional partial differential equation is addressed in this paper. The proposed method, which is based on proper algebraic factorization of the so-called diffusion matrix, depends on the semidefinite or indefinite character of this matrix. Computational cost of the transformed equation is considerably reduced and well-known numerical drawbacks are avoided.
Bibliography:ObjectType-Article-1
SourceType-Scholarly Journals-1
ObjectType-Feature-2
content type line 23
ISSN:0893-9659
1873-5452
DOI:10.1016/j.aml.2016.04.011