2021/06/02 by Karel in ’t Hout, Hout, Karel in 't, Jacob Snoeijer +1 · 1 citation
Economics, Econometrics and Finance · #Stochastic processes and financial applications #Monetary Policy and Economic Impact #Financial Markets and Investment Strategies
paper · pdf · doi:10.48550/arxiv.2106.01200
We study the principal component analysis based approach introduced by\nReisinger & Wittum (2007) and the comonotonic approach considered by Hanbali &\nLinders (2019) for the approximation of American basket option values via\nmultidimensional partial differential complementarity problems (PDCPs). Both\napproximation approaches require the solution of just a limited number of\nlow-dimensional PDCPs. It is demonstrated by ample numerical experiments that\nthey define approximations that lie close to each other. Next, an efficient\ndiscretisation of the pertinent PDCPs is presented that leads to a favourable\nconvergence behaviour.\n