Projection and Contraction Method for Pricing American Bond Options

被引：1

作者：

Zhang, Qi ^{[1
]}

Wang, Qi ^{[1
]}

Zuo, Ping ^{[2
]}

Du, Hongbo ^{[1
]}

Wu, Fangfang ^{[1
]}

机构：

[1] Shenyang Univ Technol, Sch Sci, Shenyang 110870, Peoples R China

[2] Univ Sanya, Sch New Energy & Intelligent Networked Automobile, Sanya 572022, Peoples R China

来源：

MATHEMATICS | 2023年 / 11卷 / 22期

关键词：

Cox-Ingersoll-Ross model; American bond options; linear complementarity problem; finite difference method; projection and contraction method; TERM STRUCTURE; VALUATION; MODELS;

D O I：

10.3390/math11224689

中图分类号：

O1 [数学];

学科分类号：

0701 ; 070101 ;

摘要：

In this paper, an effective numerical method is proposed for a linear complementarity problem (LCP) arising in the valuation of American bond options under the Cox-Ingersoll-Ross (CIR) model. Firstly, a variable substitution is used to simplify the linear complementary model. Secondly, the finite difference method is adopted to discretize the simplified model, and an equivalent variational form is obtained. Based on the positive definiteness of the discretized matrix, a projection and contraction method (PCM) is adopted for the resulting discretized variational problem. Finally, numerical experiments highlight the effectiveness and performance of the proposed algorithm.

引用

页数：13

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