Search results for "Linear Complementarity"
showing 10 items of 16 documents
An Operator Splitting Method for Pricing American Options
2008
Pricing American options using partial (integro-)differential equation based methods leads to linear complementarity problems (LCPs). The numerical solution of these problems resulting from the Black-Scholes model, Kou’s jump-diffusion model, and Heston’s stochastic volatility model are considered. The finite difference discretization is described. The solutions of the discrete LCPs are approximated using an operator splitting method which separates the linear problem and the early exercise constraint to two fractional steps. The numerical experiments demonstrate that the prices of options can be computed in a few milliseconds on a PC.
A thermodynamically consistent nonlocal formulation for damaging materials
2002
A thermodynamically consistent nonlocal formulation for damaging materials is presented. The second principle of thermodynamics is enforced in a nonlocal form over the volume where the dissipative mechanism takes place. The nonlocal forces thermodynamically conjugated are obtained consistently from the free energy. The paper indeed extends to elastic damaging materials a formulation originally proposed by Polizzotto et al. for nonlocal plasticity. Constitutive and computational aspects of the model are discussed. The damage consistency conditions turn out to be formulated as an integral complementarity problem and, consequently, after discretization, as a linear complementarity problem. A n…
Operator splitting methods for American option pricing
2004
Abstract We propose operator splitting methods for solving the linear complementarity problems arising from the pricing of American options. The space discretization of the underlying Black-Scholes Scholes equation is done using a central finite-difference scheme. The time discretization as well as the operator splittings are based on the Crank-Nicolson method and the two-step backward differentiation formula. Numerical experiments show that the operator splitting methodology is much more efficient than the projected SOR, while the accuracy of both methods are similar.
Frictionless contact-detachment analysis: iterative linear complementarity and quadratic programming approaches.
2012
The object of the paper concerns a consistent formulation of the classical Signorini’s theory regarding the frictionless contact problem between two elastic bodies in the hypothesis of small displacements and strains. The employment of the symmetric Galerkin boundary element method, based on boundary discrete quantities, makes it possible to distinguish two different boundary types, one in contact as the zone of potential detachment, called the real boundary, the other detached as the zone of potential contact, called the virtual boundary. The contact-detachment problem is decomposed into two sub-problems: one is purely elastic, the other regards the contact condition. Following this method…
Efficient numerical methods for pricing American options under stochastic volatility
2007
Five numerical methods for pricing American put options under Heston's stochastic volatility model are described and compared. The option prices are obtained as the solution of a two-dimensional parabolic partial differential inequality. A finite difference discretization on nonuniform grids leading to linear complementarity problems with M-matrices is proposed. The projected SOR, a projected multigrid method, an operator splitting method, a penalty method, and a componentwise splitting method are considered. The last one is a direct method while all other methods are iterative. The resulting systems of linear equations in the operator splitting method and in the penalty method are solved u…
Active macro-zone approach for incremental elastoplastic-contact analysis
2013
The symmetric boundary element method, based on the Galerkin hypotheses, has found an application in the nonlinear analysis of plasticity and in contact-detachment problems, but both dealt with separately. In this paper, we want to treat these complex phenomena together as a linear complementarity problem. A mixed variable multidomain approach is utilized in which the substructures are distinguished into macroelements, where elastic behavior is assumed, and bem-elements, where it is possible that plastic strains may occur. Elasticity equations are written for all the substructures, and regularity conditions in weighted (weak) form on the boundary sides and in the nodes (strong) between cont…
A Comparison and Survey of Finite Difference Methods for Pricing American Options Under Finite Activity Jump-Diffusion Models
2012
Partial-integro differential formulations are often used for pricing American options under jump-diffusion models. A survey on such formulations and numerical methods for them is presented. A detailed description of six efficient methods based on a linear complementarity formulation and finite difference discretizations is given. Numerical experiments compare the performance of these methods for pricing American put options under finite activity jump models.
Iterative Methods for Pricing American Options under the Bates Model
2013
We consider the numerical pricing of American options under the Bates model which adds log-normally distributed jumps for the asset value to the Heston stochastic volatility model. A linear complementarity problem (LCP) is formulated where partial derivatives are discretized using finite differences and the integral resulting from the jumps is evaluated using simple quadrature. A rapidly converging fixed point iteration is described for the LCP, where each iterate requires the solution of an LCP. These are easily solved using a projected algebraic multigrid (PAMG) method. The numerical experiments demonstrate the efficiency of the proposed approach. Furthermore, they show that the PAMG meth…
Application of Operator Splitting Methods in Finance
2016
Financial derivatives pricing aims to find the fair value of a financial contract on an underlying asset. Here we consider option pricing in the partial differential equations framework. The contemporary models lead to one-dimensional or multidimensional parabolic problems of the convection-diffusion type and generalizations thereof. An overview of various operator splitting methods is presented for the efficient numerical solution of these problems.
An Iterative Approach to Dynamic Elastic-Plastic Analysis
1998
The step-by-step analysis of structures constituted by elastic-plastic finite elements, subjected to an assigned loading history, is here considered. The structure may possess dynamic and/or not dynamic degrees-of-freedom. As it is well-known, at each step of analysis the solution of a linear complementarity problem is required. An iterative method devoted to solving the relevant linear complementarity problem is presented. It is based on the recursive solution of a linear complementarity, problem in which the constraint matrix is block-diagonal and deduced from the matrix of the original linear complementarity problem. The convergence of the procedure is also proved. Some particular cases …