A stable local radial basis function method for option pricing problem under the Bates model |
| |
Authors: | Rafael Company Vera N Egorova Lucas Jdar Fazlollah Soleymani |
| |
Institution: | Rafael Company,Vera N. Egorova,Lucas Jódar,Fazlollah Soleymani |
| |
Abstract: | We propose a local mesh‐free method for the Bates–Scott option pricing model, a 2D partial integro‐differential equation (PIDE) arising in computational finance. A Wendland radial basis function (RBF) approach is used for the discretization of the spatial variables along with a linear interpolation technique for the integral operator. The resulting set of ordinary differential equations (ODEs) is tackled via a time integration method. A potential advantage of using RBFs is the small number of discrete equations that need to be solved. Computational experiments are presented to illustrate the performance of the contributed approach. |
| |
Keywords: | Bates– Scott model option pricing radial basis functions stochastic volatility Wendland function |
|