Enhancing finite difference approximations for double barrier options: mesh optimization and repeated Richardson extrapolation

We show that the performances of the finite difference method for double barrier option pricing can be strongly enhanced by applying both a repeated Richardson extrapolation technique and a mesh optimization procedure. In particular, first we construct a space mesh that is uniform and aligned with the discontinuity points of the solution being sought. This is accomplished by means of a suitable transformation of coordinates, which involves some parameters that are implicitly defined and whose existence and uniqueness is theoretically established. Then, a finite difference scheme employing repeated Richardson extrapolation in both space and time is developed. The overall approach exhibits high efficacy: barrier option prices can be computed with accuracy close to the machine precision in less than one second. The numerical simulations also reveal that the improvement over existing methods is due to the combination of the mesh optimization and the repeated Richardson extrapolation.

     

Error Estimate of a New Conservative Finite Difference Scheme for the Klein-Gordon-Dirac System

In this paper, we derive and analyze a conservative Crank-Nicolson-type finite difference scheme for the Klein-Gordon-Dirac (KGD) system. Differing from the derivation of the existing numerical methods given in literature where the numerical schemes are proposed by directly discretizing the KGD system, we translate the KGD equations into an equivalent system by introducing an auxiliary function, then derive a nonlinear Crank-Nicolson-type finite difference scheme for solving the equivalent system. The scheme perfectly inherits the mass and energy conservative properties possessed by the KGD, while the energy preserved by the existing conservative numerical schemes expressed by two-level's solution at each time step. By using energy method together with the 'cut-off' function technique, we establish the optimal error estimate of the numerical solution, and the convergence rate is $\mathcal{O}(τ^2 + h^2)$ in $l^∞$-norm with time step $τ$ and mesh size $h.$ Numerical experiments are carried out to support our theoretical conclusions.     

A positive cell vertex Godunov scheme for a Beeler–Reuter based model of cardiac electrical activity

The monodomain model is a widely used model in electrocardiology to simulate the propagation of electrical potential in the myocardium. In this paper, we investigate a positive nonlinear control volume finite element scheme, based on Godunov's flux approximation of the diffusion term, for the monodomain model coupled to a physiological ionic model (the Beeler–Reuter model) and using an anisotropic diffusion tensor. In this scheme, degrees of freedom are assigned to vertices of a primal triangular mesh, as in conforming finite element methods. The diffusion term which involves an anisotropic tensor is discretized on a dual mesh using the diffusion fluxes provided by the conforming finite element reconstruction on the primal mesh and the other terms are discretized by means of an upwind finite volume method on the dual mesh. The scheme ensures the validity of the discrete maximum principle without any restriction on the transmissibility coefficients. By using a compactness argument, we obtain the convergence of the discrete solution and as a consequence, we get the existence of a weak solution of the original model. Finally, we illustrate by numerical simulations that the proposed scheme successfully removes nonphysical oscillations in the propagation of the wavefront and maintains conduction velocity close to physiological values.     

Sensitivities for topological graph changes in finite element meshes and application to adaptive refinement

We propose a novel approach to adaptivity in FEM based on local sensitivities for topological mesh changes. To this end, we consider refinement as a continuous operation on the edge graph of the finite element discretization, for instance by splitting nodes along edges and expanding edges to elements. Thereby, we introduce the concept of a topological mesh derivative for a given objective function that depends on the discrete solution of the underlying PDE. These sensitivities may in turn be used as refinement indicators within an adaptive algorithm. For their calculation, we rely on the first-order asymptotic expansion of the Galerkin solution with respect to the topological mesh change. As a proof of concept, we consider the total potential energy of a linear symmetric second-order elliptic PDE, minimization of which is known to decrease the approximation error in the energy norm. In this case, our approach yields local sensitivities that are closely related to the reduction of the energy error upon refinement and may therefore be used as refinement indicators in an adaptive algorithm. (© 2014 Wiley-VCH Verlag GmbH & Co. KGaA, Weinheim)     

An analysis of stability and convergence of a finite-difference discretization of a model parabolic PDE in 1D using a moving mesh

^{The aim of this paper is to investigate the stability and convergenceof time integration schemes for the solution of a semi-discretizationof a model parabolic problem in 1D using a moving mesh. Thespatial discretization is achieved using a second-order centralfinite-difference scheme. Using energy techniques we show thatthe backward Euler scheme is unconditionally stable in a mesh-dependentL₂-norm, independently of the mesh movement, but the Crank–Nicolson(CN) scheme is only conditionally stable. By identifying thediffusive and anti-diffusive effects caused by the mesh movement,we devise an adaptive -method that is shown to be unconditionallystable and asymptotically second-order accurate. Numerical experimentsare presented to back up the findings of the analysis.}     

Inclusion of Manufacturing Induced Uncertainties into Linear Vibration of Structures

Owing to manufacturing, composite materials and others can show considerable uncertainties in wall-thickness, fluctuations in material properties and other parameters, which are spatially distributed over the structure. These uncertainties have a random character and they cannot be reduced by mesh refinement within the finite element (FE) model. So what we need is a suitable statistical approach to describe the parameter changing that holds for the statistics of the process and the correlation between the parameter spatially distributed over the structure. The paper presents a solution for a spatial correlated simulation of parameter distribution owing to the manufacturing process or other causes that is suitable to be included in the finite element analysis (FEA). The spatial variation of parameters is modelled using variogram approach and it has been applied into FEA. For example the effect of spatial variation of thickness and the effect of spatial variation of material properties has been studied in this part of work. The effect of thickness on buckling has been also studied. The results could be used to asses the robustness of the structure and to get limits for manufacturing induced uncertainties. (© 2005 WILEY-VCH Verlag GmbH & Co. KGaA, Weinheim)     

含两个小参数的抛物对流扩散方程的有限差分法

研究含有两个小参数的奇异摄动抛物对流扩散方程的有限差分法.应用极大模原理和障碍函数技巧,可得方程的准确解及其各阶导数的界的估计.基于准确解的有关性态, 构造分片一致的Shishkin型网格.在Shishkin型网格上构建一个隐式迎风差分格式来进行数值求解,证得此差分策略是关于两个小参数都一致一阶收敛的.数值实验证实了理论结果的正确性.     

TWO-GRID CHARACTERISTIC FINITE VOLUME METHODS FOR NONLINEAR PARABOLIC PROBLEMS＊

In this work, two-grid characteristic finite volume schemes for the nonlinear parabolic problem are considered. In our algorithms, the diffusion term is discretized by the finite volume method, while the temporal differentiation and advection terms are treated by the characteristic scheme. Under some conditions about the coefficients and exact solution, optimal error estimates for the numerical solution are obtained. Furthermore, the two- grid characteristic finite volume methods involve solving a nonlinear equation on coarse mesh with mesh size H, a large linear problem for the Oseen two-grid characteristic finite volume method on a fine mesh with mesh size h = O（H2） or a large linear problem for the Newton two-grid characteristic finite volume method on a fine mesh with mesh size h = 0（I log hll/2H3）. These methods we studied provide the same convergence rate as that of the characteristic finite volume method, which involves solving one large nonlinear problem on a fine mesh with mesh size h. Some numerical results are presented to demonstrate the efficiency of the proposed methods.     

A large time‐step implicit moving mesh scheme for moving boundary problems

Velocity‐based moving mesh methods update the mesh at each time level by using a velocity equation with a time‐stepping scheme. A particular velocity‐based moving mesh method, based on conservation, uses explicit time‐stepping schemes with small time steps to avoid mesh tangling. However, this can prove to be impractical when long‐term behavior of the solution is of interest. Here, we present a semi‐implicit time‐stepping scheme which manipulates the structure of the velocity equation such that it resembles a variable‐coefficient heat equation. This enables the use of maximum/minimum principle which ensures that mesh tangling is avoided. It is also shown that this semi‐implicit scheme can be extended to a fully implicit time‐stepping scheme. Thus, the time‐step restriction imposed by explicit schemes is overcome without sacrificing mesh structure. © 2013 Wiley Periodicals, Inc. Numer Methods Partial Differential Eq 30: 321–338, 2014     

The BS class of Hermite spline quasi-interpolants on nonuniform knot distributions

The BS Hermite spline quasi-interpolation scheme is presented. It is related to the continuous extension of the BS linear multistep methods, a class of Boundary Value Methods for the solution of Ordinary Differential Equations. In the ODE context, using the numerical solution and the associated numerical derivative produced by the BS methods, it is possible to compute, with a local approach, a suitable spline with knots at the mesh points collocating the differential equation at the knots and having the same convergence order as the numerical solution. Starting from this spline, here we derive a new quasi-interpolation scheme having the function and the derivative values at the knots as input data. When the knot distribution is uniform or the degree is low, explicit formulas can be given for the coefficients of the new quasi-interpolant in the B-spline basis. In the general case these coefficients are obtained as solution of suitable local linear systems of size 2d×2d, where d is the degree of the spline. The approximation order of the presented scheme is optimal and the numerical results prove that its performances can be very good, in particular when suitable knot distributions are used.     

A Finite Difference Scheme on a Priori Adapted Meshes for a Singularly Perturbed Parabolic Convection-Diffusion Equation

A boundary value problem is considered for a singularly perturbed parabolic convection-diffusion equation;we construct a finite difference scheme on a priori (se-quentially) adapted meshes and study its convergence.The scheme on a priori adapted meshes is constructed using a majorant function for the singular component of the discrete solution,which allows us to find a priori a subdomain where the computed solution requires a further improvement.This subdomain is defined by the perturbation parameterε,the step-size of a uniform mesh in x,and also by the required accuracy of the discrete solution and the prescribed number of refinement iterations K for im- proving the solution.To solve the discrete problems aimed at the improvement of the solution,we use uniform meshes on the subdomains.The error of the numerical so- lution depends weakly on the parameterε.The scheme converges almostε-uniformly, precisely,under the condition N~(-1)=o(ε~v),where N denotes the number of nodes in the spatial mesh,and the value v=v(K) can be chosen arbitrarily small for suitable K.     

Uniform stabilization of numerical schemes for the critical generalized Korteweg-de Vries equation with damping

This work is devoted to the analysis of a fully-implicit numerical scheme for the critical generalized Korteweg–de Vries equation (GKdV with p = 4) in a bounded domain with a localized damping term. The damping is supported in a subset of the domain, so that the solutions of the continuous model issuing from small data are globally defined and exponentially decreasing in the energy space. Based in this asymptotic behavior of the solution, we introduce a finite difference scheme, which despite being one of the first order, has the good property to converge in L ⁴-strong. Combining this strong convergence with discrete multipliers and a contradiction argument, we show that the smallness of the initial condition leads to the uniform (with respect to the mesh size) exponential decay of the energy associated to the scheme. Numerical experiments are provided to illustrate the performance of the method and to confirm the theoretical results.     

A robust and parallel relaxation method based on algebraic splittings

We propose and analyze a new relaxation scheme for the iterative solution of the linear system arising from the finite difference discretization of convection–diffusion problems. For problems that are convection dominated, the (nondimensionalized) diffusion parameter ϵ is usually several orders of magnitude smaller than computationally feasible mesh widths. Thus, it is of practical importance that approximation methods not degrade for small ϵ. We give a relaxation procedure that is proven to converge uniformly in ϵ to the solution of the linear algebraic system (i.e., “robustly”). The procedure requires, at each step, the solution of one 4 × 4 linear system per mesh cell. Each 4 × 4 system can be independently solved, and the result communicated to the neighboring mesh cells. Thus, on a mesh connected processor array, the communication requirements are four local communications per iteration per mesh cell. An example is given, which illustrates the robustness of the new relaxation scheme. © 1999 John Wiley & Sons, Inc. Numer Methods Partial Differential Eq 15: 91–110, 1999     

Reduced-dissipation remapping of velocity in staggered arbitrary Lagrangian-Eulerian methods

Remapping is an essential part of most Arbitrary Lagrangian-Eulerian (ALE) methods. In this paper, we focus on the part of the remapping algorithm that performs the interpolation of the fluid velocity field from the Lagrangian to the rezoned computational mesh in the context of a staggered discretization. Standard remapping algorithms generate a discrepancy between the remapped kinetic energy, and the kinetic energy that is obtained from the remapped nodal velocities which conserves momentum. In most ALE codes, this discrepancy is redistributed to the internal energy of adjacent computational cells which allows for the conservation of total energy. This approach can introduce oscillations in the internal energy field, which may not be acceptable. We analyze the approach introduced in Bailey (1984) [11] which is not supposed to introduce dissipation. On a simple example, we demonstrate a situation in which this approach fails. A modification of this approach is described, which eliminates (when it is possible) or reduces the energy discrepancy.     

A numerical method for pricing European options with proportional transaction costs

In the paper, we propose a numerical technique based on a finite difference scheme in space and an implicit time-stepping scheme for solving the Hamilton–Jacobi–Bellman (HJB) equation arising from the penalty formulation of the valuation of European options with proportional transaction costs. We show that the approximate solution from the numerical scheme converges to the viscosity solution of the HJB equation as the mesh sizes in space and time approach zero. We also propose an iterative scheme for solving the nonlinear algebraic system arising from the discretization and establish a convergence theory for the iterative scheme. Numerical experiments are presented to demonstrate the robustness and accuracy of the method.     

Finite Volume Methods for Multi-Symplectic PDES

We investigate the application of a cell-vertex finite volume discretization to multi-symplectic PDEs. The investigated discretization reduces to the Preissman box scheme when used on a rectangular grid. Concerning arbitrary quadrilateral grids, we show that only methods with parallelogram-like finite volume cells lead to a multi-symplectic discretization; i.e., to a method that preserves a discrete conservation law of symplecticity. One of the advantages of finite volume methods is that they can be easily adjusted to variable meshes. But, although the implementation of moving mesh finite volume methods for multi-symplectic PDEs is rather straightforward, the restriction to parallelogram-like cells implies that only meshes moving with a constant speed are multi-symplectic. To overcome this restriction, we suggest the implementation of reversible moving mesh methods based on a semi-Lagrangian approach. Numerical experiments are presented for a one dimensional dispersive shallow-water system.     

Energy-momentum conserving discretization of mixed shell elements for large deformation problems

In the present paper we consider structure-preserving integration methods in the context of mixed finite elements. The used low-order mixed finite elements typically exhibit improved coarse mesh accuracy. On the other hand energy-momentum (EM) consistent time-stepping schemes have been developed in the realm of nonlinear structural dynamics to enhance the numerical stability properties. EM schemes typically exhibit superior robustness and thus offer the possibility to use large time steps while still producing physically meaningful results. Accordingly, combining mixed finite element discretizations in space with EM consistent discretizations in time shows great promise for the design of numerical methods with superior coarse mesh accuracy in space and time. Starting with a general Hu-Washizu-type variational formulation we develop a second-order accurate structure-preserving integration scheme. The present approach is applicable to a large number of mixed finite element formulations. As sample application we deal with a specific mixed shell element. Numerical examples dealing with large deformations will show the improved coarse mesh accuracy in space and time of the advocated approach. (© 2015 Wiley-VCH Verlag GmbH & Co. KGaA, Weinheim)     

Uniform boundary stabilization of the finite difference space discretization of the 1−d wave equation

The energy of solutions of the wave equation with a suitable boundary dissipation decays exponentially to zero as time goes to infinity. We consider the finite-difference space semi-discretization scheme and we analyze whether the decay rate is independent of the mesh size. We focus on the one-dimensional case. First we show that the decay rate of the energy of the classical semi-discrete system in which the 1?d Laplacian is replaced by a three-point finite difference scheme is not uniform with respect to the net-spacing size h. Actually, the decay rate tends to zero as h goes to zero. Then we prove that adding a suitable vanishing numerical viscosity term leads to a uniform (with respect to the mesh size) exponential decay of the energy of solutions. This numerical viscosity term damps out the high frequency numerical spurious oscillations while the convergence of the scheme towards the original damped wave equation is kept. Our method of proof relies essentially on discrete multiplier techniques.     

An adaptive mesh method for 1D hyperbolic conservation laws

An adaptive method is developed for solving one-dimensional systems of hyperbolic conservation laws, which combines the rezoning approach with the finite volume weighted essentially non-oscillatory (WENO) scheme. An a posteriori error estimate, used to equidistribute the mesh, is obtained from the differences between respective numerical solutions of 5th-order WENO (WENO5) and 3rd-order ENO (ENO3) schemes. The number of grids can be adaptively readjusted based on the solution structure. For higher efficiency, mesh readjustment is performed every few time steps rather than every time step. In addition, a high order conservative interpolation is used to compute the physical solutions on the new mesh from old mesh based on the finite volume ENO reconstruction. Extensive examples suggest that this adaptive method exhibits more accurate resolution of discontinuities for a similar level of computational time comparing with that on a uniform mesh.     

A numerical method for solving linear integral equations of the second kind on the non-rectangular domains based on the meshless method

The main purpose of this article is to describe a numerical scheme for solving two-dimensional linear Fredholm integral equations of the second kind on a non-rectangular domain. The method approximates the solution by the discrete collocation method based on radial basis functions (RBFs) constructed on a set of disordered data. The proposed method does not require any background mesh or cell structures, so it is meshless and consequently independent of the geometry of domain. This approach reduces the solution of the two-dimensional integral equation to the solution of a linear system of algebraic equations. The error analysis of the method is provided. The proposed scheme is also extended to linear mixed Volterra–Fredholm integral equations. Finally, some numerical examples are presented to illustrate the efficiency and accuracy of the new technique.