An ETD method for vulnerable American options

This paper introduces the exponential time differencing (ETD) technique as a numerical method to efficiently solve vulnerable American options pricing. We address several challenges, including removing cross-derivative terms through appropriate transformations, treating early-exercise opportunities...

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Detalles Bibliográficos
Autores: Company, Rafael, Egorova, Vera|||0000-0002-3024-3033, Jódar Sánchez, Lucas
Tipo de recurso: artículo
Fecha de publicación:2024
País:España
Institución:Universidad de Cantabria (UC)
Repositorio:UCrea Repositorio Abierto de la Universidad de Cantabria
Idioma:inglés
OAI Identifier:oai:repositorio.unican.es:10902/32898
Acceso en línea:https://hdl.handle.net/10902/32898
Access Level:acceso abierto
Palabra clave:Vulnerable options
Default risk
Exponential time differencing
Penalty method
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spelling An ETD method for vulnerable American optionsCompany, RafaelEgorova, Vera|||0000-0002-3024-3033Jódar Sánchez, LucasVulnerable optionsDefault riskExponential time differencingPenalty methodThis paper introduces the exponential time differencing (ETD) technique as a numerical method to efficiently solve vulnerable American options pricing. We address several challenges, including removing cross-derivative terms through appropriate transformations, treating early-exercise opportunities using the penalty method, and substituting fixed boundary conditions with corresponding one-sided finite differences. The proposed method is shown to be both accurate and efficient through numerical experiments, which also compare the results with existing methods and analyze the numerical stability and convergence rate.This work was partially supported by the Spanish Ministry of Economy and Competitiveness MINECO through the project PID2019-107685RB-I00 and by the Spanish State Research Agency (AEI) through the project PDC2022-133115-I00.MDPIUniversidad de Cantabria20242024-02-17journal articlehttp://purl.org/coar/resource_type/c_6501NAhttp://purl.org/coar/version/c_be7fb7dd8ff6fe43info:eu-repo/semantics/articlehttps://hdl.handle.net/10902/32898Mathematics, 2024, 12(4), 602reponame:UCrea Repositorio Abierto de la Universidad de Cantabriainstname:Universidad de Cantabria (UC)Inglésengopen accesshttp://purl.org/coar/access_right/c_abf2Attribution 4.0 Internationalhttp://creativecommons.org/licenses/by/4.0/info:eu-repo/semantics/openAccessoai:repositorio.unican.es:10902/328982026-06-02T12:39:31Z
dc.title.none.fl_str_mv An ETD method for vulnerable American options
title An ETD method for vulnerable American options
spellingShingle An ETD method for vulnerable American options
Company, Rafael
Vulnerable options
Default risk
Exponential time differencing
Penalty method
title_short An ETD method for vulnerable American options
title_full An ETD method for vulnerable American options
title_fullStr An ETD method for vulnerable American options
title_full_unstemmed An ETD method for vulnerable American options
title_sort An ETD method for vulnerable American options
dc.creator.none.fl_str_mv Company, Rafael
Egorova, Vera|||0000-0002-3024-3033
Jódar Sánchez, Lucas
author Company, Rafael
author_facet Company, Rafael
Egorova, Vera|||0000-0002-3024-3033
Jódar Sánchez, Lucas
author_role author
author2 Egorova, Vera|||0000-0002-3024-3033
Jódar Sánchez, Lucas
author2_role author
author
dc.contributor.none.fl_str_mv Universidad de Cantabria
dc.subject.none.fl_str_mv Vulnerable options
Default risk
Exponential time differencing
Penalty method
topic Vulnerable options
Default risk
Exponential time differencing
Penalty method
description This paper introduces the exponential time differencing (ETD) technique as a numerical method to efficiently solve vulnerable American options pricing. We address several challenges, including removing cross-derivative terms through appropriate transformations, treating early-exercise opportunities using the penalty method, and substituting fixed boundary conditions with corresponding one-sided finite differences. The proposed method is shown to be both accurate and efficient through numerical experiments, which also compare the results with existing methods and analyze the numerical stability and convergence rate.
publishDate 2024
dc.date.none.fl_str_mv 2024
2024-02-17
dc.type.none.fl_str_mv journal article
http://purl.org/coar/resource_type/c_6501
NA
http://purl.org/coar/version/c_be7fb7dd8ff6fe43
dc.type.openaire.fl_str_mv info:eu-repo/semantics/article
format article
dc.identifier.none.fl_str_mv https://hdl.handle.net/10902/32898
url https://hdl.handle.net/10902/32898
dc.language.none.fl_str_mv Inglés
eng
language_invalid_str_mv Inglés
language eng
dc.rights.none.fl_str_mv open access
http://purl.org/coar/access_right/c_abf2
Attribution 4.0 International
http://creativecommons.org/licenses/by/4.0/
dc.rights.openaire.fl_str_mv info:eu-repo/semantics/openAccess
rights_invalid_str_mv open access
http://purl.org/coar/access_right/c_abf2
Attribution 4.0 International
http://creativecommons.org/licenses/by/4.0/
eu_rights_str_mv openAccess
dc.publisher.none.fl_str_mv MDPI
publisher.none.fl_str_mv MDPI
dc.source.none.fl_str_mv Mathematics, 2024, 12(4), 602
reponame:UCrea Repositorio Abierto de la Universidad de Cantabria
instname:Universidad de Cantabria (UC)
instname_str Universidad de Cantabria (UC)
reponame_str UCrea Repositorio Abierto de la Universidad de Cantabria
collection UCrea Repositorio Abierto de la Universidad de Cantabria
repository.name.fl_str_mv
repository.mail.fl_str_mv
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