A Radial Basis Function Scheme for Option Pricing in Exponential Lévy Models

Article


Brummelhuis, Raymond and Chan, R. 2013. A Radial Basis Function Scheme for Option Pricing in Exponential Lévy Models. Applied Mathematical Finance. 21 (3), pp. 238-269.
AuthorsBrummelhuis, Raymond and Chan, R.
Abstract

We use Radial Basis Function (RBF) interpolation to price options in exponential Lévy models by numerically solving the fundamental pricing PIDE (Partial integro-differential equations). Our RBF scheme can handle arbitrary singularities of the Lévy measure in 0 without introducing further approximations, making it simpler to implement than competing methods. In numerical experiments using processes from the CGMY-KoBoL class, the scheme is found to be second order convergent in the number of interpolation points, including for processes of unbounded variation.

JournalApplied Mathematical Finance
Journal citation21 (3), pp. 238-269
ISSN1350-486X
Year2013
PublisherTaylor & Francis
Accepted author manuscript
Digital Object Identifier (DOI)doi:10.1080/1350486X.2013.850902
Web address (URL)https://doi.org/10.1080/1350486X.2013.850902
Publication dates
Online17 Dec 2013
Publication process dates
Deposited01 Dec 2017
Accepted08 Aug 2013
Accepted08 Aug 2013
Copyright information© 2013 Taylor & Francis. This is an Accepted Manuscript of an article published by Taylor & Francis in Applied Mathematical Finance on 17/12/2013, available online: http://www.tandfonline.com/10.1080/1350486X.2013.850902.
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