Analytic and Experimental Studies of the Errors in Numerical Methods for the Valuation of Options

The value of a European option satisfies the Black-Scholes equation with appropriately specified final and boundary conditions.We transform the problem to an initial boundary value problem in dimensionless form.There are two parameters in the coefficients of the resulting linear parabolic partial differential equation.For a range of values of these parameters,the solution of the problem has a boundary or an initial layer.The initial function has a discontinuity in the first-order derivative,which leads to the appearance of an interior layer.We construct analytically the asymptotic solution of the equation in a finite domain.Based on the asymptotic solution we can determine the size of the artificial boundary such that the required solution in a finite domain in x and at the final time is not affected by the boundary.Also,we study computationally the behaviour in the maximum norm of the errors in numerical solutions in cases such that one of the parameters varies from finite (or pretty large) to small values,while the other parameter is fixed and takes either finite (or pretty large) or small values. Crank-Nicolson explicit and implicit schemes using centered or upwind approximations to the derivative are studied.We present numerical computations,which determine experimentally the parameter-uniform rates of convergence.We note that this rate is rather weak,due probably to mixed sources of error such as initial and boundary layers and the discontinuity in the derivative of the solution.     

Optimal error estimates and modified energy conservation identities of the ADI-FDTD scheme on staggered grids for 3D Maxwell’s equations

This paper is concerned with the optimal error estimates and energy conservation properties of the alternating direction implicit finite-difference time-domain(ADI-FDTD) method which is a popular scheme for solving the 3D Maxwell’s equations.Precisely,for the case with a perfectly electric conducting(PEC) boundary condition we establish the optimal second-order error estimates in both space and time in the discrete H 1-norm for the ADI-FDTD scheme,and prove the approximate divergence preserving property that if the divergence of the initial electric and magnetic fields are zero,then the discrete L 2-norm of the discrete divergence of the ADI-FDTD solution is approximately zero with the second-order accuracy in both space and time.The key ingredient is two new discrete modified energy norms which are second-order in time perturbations of two new energy conservation laws for the Maxwell’s equations introduced in this paper.Furthermore,we prove that,in addition to two known discrete modified energy identities which are second-order in time perturbations of two known energy conservation laws,the ADI-FDTD scheme also satisfies two new discrete modified energy identities which are second-order in time perturbations of the two new energy conservation laws.This means that the ADI-FDTD scheme is unconditionally stable under the four discrete modified energy norms.Experimental results which confirm the theoretical results are presented.     

POINTWISE ESTIMATES OF SOLUTION FOR NON-ISENTROPIC NAVIER-STOKES-POISSON EQUATIONS IN MULTI-DIMENSIONS

The Cauchy problem of the non-isentropic Navier-Stokes-Poisson equations in multi-dimensions is considered.The global existence and pointwise estimates of the classical solution are given,which extend the optimal decay rate in L 2-norm in [27] to the L p(R n)(p > n/n-1)-norm.     

CONVERGENCE ANALYSIS OF THE JACOBI SPECTRAL-COLLOCATION METHOD FOR FRACTIONAL INTEGRO-DIFFERENTIAL EQUATIONS

We propose and analyze a spectral Jacobi-collocation approximation for fractional order integro-differential equations of Volterra type. The fractional derivative is described in the Caputo sense. We provide a rigorous error analysis for the collection method,which shows that the errors of the approximate solution decay exponentially in L∞norm and weighted L2-norm. The numerical examples are given to illustrate the theoretical results.     

A NEW NONCONFORMING MIXED FINITE ELEMENT SCHEME FOR THE STATIONARY NAVIER-STOKES EQUATIONS

In this article, a new stable nonconforming mixed finite element scheme is proposed for the stationary Navier-Stokes equations, in which a new low order CrouzeixRaviart type nonconforming rectangular element is taken for approximating space for the velocity and the piecewise constant element for the pressure. The optimal order error estimates for the approximation of both the velocity and the pressure in L2-norm are established, as well as one in broken H1-norm for the velocity. Numerical experiments are given which are consistent with our theoretical analysis.     

Construction of Solutions and L^1-error Estimates of Viscous Methods for Scalar Conservation Laws with Boundary

This paper is concerned with an initial boundary value problem for strictly convex conservation laws whose weak entropy solution is in the piecewise smooth solution class consisting of finitely many discontinuities. By the structure of the weak entropy solution of the corresponding initial value problem and the boundary entropy condition developed by Bardos-Leroux Nedelec, we give a construction method to the weak entropy solution of the initial boundary value problem. Compared with the initial value problem, the weak entropy solution of the initial boundary value problem includes the following new interaction type： an expansion wave collides with the boundary and the boundary reflects a new shock wave which is tangent to the boundary. According to the structure and some global estimates of the weak entropy solution, we derive the global L^1-error estimate for viscous methods to this initial boundary value problem by using the matching travelling wave solutions method. If the inviscid solution includes the interaction that an expansion wave collides with the boundary and the boundary reflects a new shock wave which is tangent to the boundary, or the inviscid solution includes some shock wave which is tangent to the boundary, then the error of the viscosity solution to the inviscid solution is bounded by O（ε^1/2） in L^1-norm; otherwise, as in the initial value problem, the L^1-error bound is O（ε｜ In ε｜）.     

FINITE DIFFERENCE APPROXIMATION FOR PRICING THE AMERICAN LOOKBACK OPTION

In this paper we are concerned with the pricing of lookback options with American type constrains. Based on the differential linear complementary formula associated with the pricing problem, an implicit difference scheme is constructed and analyzed. We show that there exists a unique difference solution which is unconditionally stable. Using the notion of viscosity solutions, we also prove that the finite difference solution converges uniformly to the viscosity solution of the continuous problem. Furthermore, by means of the variational inequality analysis method, the O（△t ＋ △x^2）-order error estimate is derived in the discrete L2-norm provided that the continuous problem is sufficiently regular. In addition, a numerical example is provided to illustrate the theoretical results.     

The Core-EP,Weighted Core-EP Inverse of Matrices and Constrained Systems of Linear Equations

We study the constrained systemof linear equations Ax=b,x∈R(A^k)for A∈C^n×nand b∈Cn,k=Ind(A).When the system is consistent,it is well known that it has a unique A^Db.If the system is inconsistent,then we seek for the least squares solution of the problem and consider min_x∈R(A^k)||b?Ax||2,where||·||2 is the 2-norm.For the inconsistent system with a matrix A of index one,it was proved recently that the solution is A^■b using the core inverse A^■of A.For matrices of an arbitrary index and an arbitrary b,we show that the solution of the constrained system can be expressed as A^■b where A^■is the core-EP inverse of A.We establish two Cramer’s rules for the inconsistent constrained least squares solution and develop several explicit expressions for the core-EP inverse of matrices of an arbitrary index.Using these expressions,two Cramer’s rules and one Gaussian elimination method for computing the core-EP inverse of matrices of an arbitrary index are proposed in this paper.We also consider the W-weighted core-EP inverse of a rectangular matrix and apply the weighted core-EP inverse to a more general constrained system of linear equations.     

GLOBAL EXISTENCE AND CONVERGENCE RATES OF SMOOTH SOLUTIONS FOR THE 3-D COMPRESSIBLE MAGNETOHYDRODYNAMIC EQUATIONS WITHOUT HEAT CONDUCTIVITY

In this paper, we are concerned with the global existence and convergence rates of the smooth solutions for the compressible magnetohydrodynamic equations without heat conductivity, which is a hyperbolic-parabolic system. The global solutions are obtained by combining the local existence and a priori estimates if H3-norm of the initial perturbation around a constant states is small enough and its L1-norm is bounded. A priori decay-in-time estimates on the pressure, velocity and magnetic field are used to get the uniform bound of entropy. Moreover, the optimal convergence rates are also obtained.     

Time-Periodic Solution to the Compressible Navier–Stokes/Allen–Cahn System

In this paper,we investigate the time-periodic solution to a coupled compressible Navier–Stokes/Allen–Cahn system which describes the motion of a mixture of two viscous compressible fluids with a time periodic external force in a periodic domain in R^N.The existence of the time-periodic solution to the system is established by using an approach of parabolic regularization and combining with the topology degree theory,and then the uniqueness of the period solution is obtained under some smallness and symmetry assumptions on the external force.     

On the vanishing viscosity limit in a disk

We say that a solution of the Navier–Stokes equations converges in the vanishing viscosity limit to a solution of the Euler equations if their velocities converge in the energy (L ²) norm uniformly in time as the viscosity ν vanishes. We show that a necessary and sufficient condition for the vanishing viscosity limit to hold in a disk is that the space–time energy density of the solution to the Navier–Stokes equations in a boundary layer of width proportional to ν vanish with ν, and that one need only consider spatial variations whose frequencies in the radial or tangential direction lie in a band centered around 1/ν. The author was supported in part by NSF grant DMS-0705586 during the period of this work.     

Amemiya Norm Equals Orlicz Norm in Musielak-Orlicz Spaces

Let （Ω,μ） be a a-finite measure space and Φ ： Ω × [0,∞） → [0, ∞] be a Musielak-Orlicz function. Denote by L^Φ（Ω） the Musielak-Orlicz space generated by Φ. We prove that the Amemiya norm equals the Orlicz norm in L^Φ（Ω）.     

A Generalization of the Mean Size Formula of Wavelet Packets in Lp

The purpose of this paper is to investigate the mean size formula of wavelet packets in Lp for 0 〈 p ≤ ∞. We generalize a mean size formula of wavelet packets given in terms of the p-norm joint spectral radius and we also give some asymptotic formulas for the Lp-norm or quasi-norm on the subdivision trees. All results will be given in the general setting,     

The Existence and Uniqueness of the Solution for Neutral Stochastic Functional Differential Equations with Infinite Delay in Abstract Space

The main aim of this paper is to prove the existence and uniqueness of the solution for neutral stochastic functional differential equations with infinite delay, which the initial data belong to the phase space ℬ((−∞,0];ℝ ^d ). The vital work of this paper is to extend the initial function space of the paper (Wei and Wang, J. Math. Anal. Appl. 331:516–531, 2007) and give some examples to show that the phase space ℬ((−∞,0];ℝ ^d ) exists. In addition, this paper builds a Banach space ℳ²((−∞,T],ℝ ^d ) with a new norm in order to discuss the existence and uniqueness of the solution for such equations with infinite delay.     

On the Cauchy Problem of Evolution P-Laplacian Equations with Strongly Non-linear Sources When 1 < p < 2

We study the solvability of the Cauchy problem (1.1)–(1.2) for the largest possible class of initial values, for which (1.1)–(1.2) has a local solution. Moreover, we also study the critical case related to the initial value u ₀, for 1 < p < ∞. Project supported by the National Natural Science Foundation of China (19971070)     

Convolution Operators on Banach Lattices with Shift-Invariant Norms

Let G be a locally compact abelian group and let μ be a complex valued regular Borel measure on G. In this paper we consider a generalisation of a class of Banach lattices introduced in Johansson (Syst Control Lett 57:105–111, 2008). We use Laplace transform methods to show that the norm of a convolution operator with symbol μ on such a space is bounded below by the L ^∞ norm of the Fourier–Stieltjes transform of μ. We also show that for any Banach lattice of locally integrable functions on G with a shift-invariant norm, the norm of a convolution operator with symbol μ is bounded above by the total variation of μ.     

Error estimates for the numerical approximation of Neumann control problems

We continue the discussion of error estimates for the numerical analysis of Neumann boundary control problems we started in Casas et al. (Comput. Optim. Appl. 31:193–219, 2005). In that paper piecewise constant functions were used to approximate the control and a convergence of order O(h) was obtained. Here, we use continuous piecewise linear functions to discretize the control and obtain the rates of convergence in L ²(Γ). Error estimates in the uniform norm are also obtained. We also discuss the approach suggested by Hinze (Comput. Optim. Appl. 30:45–61, 2005) as well as the improvement of the error estimates by making an extra assumption over the set of points corresponding to the active control constraints. Finally, numerical evidence of our estimates is provided. The authors were supported by Ministerio de Ciencia y Tecnología (Spain).     

Approximation of singularly perturbed parabolic equations in unbounded domains subject to piecewise smooth boundary conditions in the case of solutions that grow at infinity

The initial-boundary value problem in a domain on a straight line that is unbounded in x is considered for a singularly perturbed reaction-diffusion parabolic equation. The higher order derivative in the equation is multiplied by a parameter ɛ², where ɛ ∈ (0, 1]. The right-hand side of the equation and the initial function grow unboundedly as x → ∞ at a rate of O(x ²). This causes the unbounded growth of the solution at infinity at a rate of O(Ψ(x)), where Ψ(x) = x ² + 1. The initialboundary function is piecewise smooth. When ɛ is small, a boundary and interior layers appear, respectively, in a neighborhood of the lateral part of the boundary and in a neighborhood of the characteristics of the reduced equation passing through the discontinuity points of the initial function. In the problem under examination, the error of the grid solution grows unboundedly in the maximum norm as x → ∞ even for smooth solutions when ɛ is fixed. In this paper, the proximity of solutions of the initial-boundary value problem and its grid approximations is considered in the weighted maximum norm ∥·∥ ^w with the weighting function Ψ⁻¹(x); in this norm, the solution of the initial-boundary value problem is ɛ-uniformly bounded. Using the method of special grids that condense in a neighborhood of the boundary layer or in neighborhoods of the boundary and interior layers, special finite difference schemes are constructed and studied that converge ɛ-uniformly in the weighted norm. It is shown that the convergence rate considerably depends on the type of nonsmoothness in the initial-boundary conditions. Grid approximations of the Cauchy problem with the right-hand side and the initial function growing as O(Ψ(x)) that converge ɛ-uniformly in the weighted norm are also considered.     

Improved approximations of the solution and derivatives to a singularly perturbed reaction-diffusion equation based on the solution decomposition method

In the case of the Dirichlet problem for a singularly perturbed ordinary differential reaction-diffusion equation, a new approach is used to the construction of finite difference schemes such that their solutions and their normalized first- and second-order derivatives converge in the maximum norm uniformly with respect to a perturbation parameter ɛ ∈(0, 1]; the normalized derivatives are ɛ-uniformly bounded. The key idea of this approach to the construction of ɛ-uniformly convergent finite difference schemes is the use of uniform grids for solving grid subproblems for the regular and singular components of the grid solution. Based on the asymptotic construction technique, a scheme of the solution decomposition method is constructed such that its solution and its normalized first- and second-order derivatives converge ɛ-uniformly at the rate of O(N ⁻²ln² N), where N + 1 is the number of points in the uniform grids. Using the Richardson technique, an improved scheme of the solution decomposition method is constructed such that its solution and its normalized first and second derivatives converge ɛ-uniformly in the maximum norm at the same rate of O(N ⁻⁴ln⁴ N).