Isogeometric Analysis for the Pricing of Financial Derivatives with Nonlinear Models: Convertible Bonds and Options
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| Main Authors: | , , , |
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| Format: | Preprint |
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2024
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| _version_ | 1866917866998071296 |
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| author | Kazbek, Rakhymzhan Erlangga, Yogi Amanbek, Yerlan Wei, Dongming |
| author_facet | Kazbek, Rakhymzhan Erlangga, Yogi Amanbek, Yerlan Wei, Dongming |
| contents | Computational efficiency is essential for enhancing the accuracy and practicality of pricing complex financial derivatives. In this paper, we discuss Isogeometric Analysis (IGA) for valuing financial derivatives, modeled by two nonlinear Black-Scholes PDEs: the Leland model for European call with transaction costs and the AFV model for convertible bonds with default options. We compare the solutions of IGA with finite difference methods (FDM) and finite element methods (FEM). In particular, very accurate solutions can be numerically calculated on far less mesh (knots) than FDM or FEM, by using non-uniform knots and weighted cubic NURBS, which in turn reduces the computational time significantly. |
| format | Preprint |
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arxiv_https___arxiv_org_abs_2412_08987 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | Isogeometric Analysis for the Pricing of Financial Derivatives with Nonlinear Models: Convertible Bonds and Options Kazbek, Rakhymzhan Erlangga, Yogi Amanbek, Yerlan Wei, Dongming Computational Finance Numerical Analysis Pricing of Securities Computational efficiency is essential for enhancing the accuracy and practicality of pricing complex financial derivatives. In this paper, we discuss Isogeometric Analysis (IGA) for valuing financial derivatives, modeled by two nonlinear Black-Scholes PDEs: the Leland model for European call with transaction costs and the AFV model for convertible bonds with default options. We compare the solutions of IGA with finite difference methods (FDM) and finite element methods (FEM). In particular, very accurate solutions can be numerically calculated on far less mesh (knots) than FDM or FEM, by using non-uniform knots and weighted cubic NURBS, which in turn reduces the computational time significantly. |
| title | Isogeometric Analysis for the Pricing of Financial Derivatives with Nonlinear Models: Convertible Bonds and Options |
| topic | Computational Finance Numerical Analysis Pricing of Securities |
| url | https://arxiv.org/abs/2412.08987 |