A quasi-radial basis functions method for American options pricing

By Yiu Chung Benny Hon. 2002

104 citations recorded by the source corpus.

Abstract Based on the idea of quasi-interpolation and radial basis functions approximation, a fast and accurate numerical method is developed for solving the Black-Scholes equation for valuation of American options prices. Since the method does not require solving a resultant full matrix, the ill-conditioning problem resulting from using the radial basis functions as a global interpolant can be avoided. The method has been shown to be effective in solving problems with free boundary condition. As indicated in the numerical computation for the American option pricing, an excellent approximation of the solution as well as the free optimal exercise boundary can be obtained.

Subfields: Computational Mechanics, Finance, Numerical Analysis

View Paper: https://www.semanticscholar.org/paper/10d9297f14527ec9424152c0c1c21bb662bde34c

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In Computational Mechanics

1. A. VossD
2. M. KhaliqAQ
3. D. Voss
4. Gregory E. Fasshauer
5. Abdul Khaliq
6. E. FasshauerG

In Finance

1. Abdul Khaliq
2. A. VossD
3. M. KhaliqAQ
4. D. Voss
5. Gregory E. Fasshauer
6. E. FasshauerG

In Numerical Analysis

1. Abdul Khaliq
2. A. VossD
3. M. KhaliqAQ
4. D. Voss
5. Gregory E. Fasshauer
6. E. FasshauerG

Citations in the corpus

• Using meshfree approximation for multi‐asset American options (2004, methodology): “, Hon (2002); Hon and Mao (1999); Marcozzi et al.”
• Using meshfree approximation for multi-asset American option problems (2004, methodology): “Instead of using radial basis function interpolation, it is also possible to use quasiinterpolation (see, e.g., [ 9 ]) to solve the Black-Scholes equation.”