Mathematical Finance Seminar

November 16, 2000 , 5:30 PM to 7:00 PM

Robert Zvan, Bear Stearns

Topics in the Numerical Solution of Option Pricing PDEs

The talk will cover several aspects of numerically solving PDE option pricing models. A penalty method for imposing continuously applied constraints will be presented. The penalty method can be used to impose barriers and early-exercise features. Certain continuous path-dependent option pricing models are degenerate/convection dominated. A flux-limiting scheme that handles degenerate pricing problems will be discussed. A finite element method that uses triangular elements for the solution of two-factor option pricing problems will also be presented. The finite element approach can improve computational efficiency and can support irregular domains. Irregular domains occur when certain continuous lookback or two-asset barrier options are priced.