Efficient Hierarchical Approximation of High‐Dimensional Option Pricing Problems

Christoph Reisinger, Gabriel Wittum
2007 SIAM Journal on Scientific Computing  
A major challenge in computational finance is the pricing of options that depend on a large number of risk factors. Prominent examples are basket or index options where dozens or even hundreds of stocks constitute the underlying asset and determine the dimensionality of the corresponding degenerate parabolic equation. The objective of this article is to show how an efficient discretisation can be achieved by hierarchical approximation as well as asymptotic expansions of the underlying
more » ... problem. The relation to a number of state-of-the-art methods is highlighted.
doi:10.1137/060649616 fatcat:a6hamqspinf45gwkipyloelwde