Work

Fast solutions of complementarity formulations in American put pricing

Year: 2005

Type: article

Abstract: ABSTRACT The finite-difference value function of an American put option can be computed by solving a sequence of linear complementarity problems (LCPs). The stateof- the-art methods that solve these equations converge slowly. Recently, Borici and Lüthi have shown that in the case of the implicit discretization scheme it is possible to solve LCPs in a computer time which grows linearly with the number of spatial grid points. In this paper we show that this result can be generalized for the more accurate discretization scheme of Crank and Nicolson. We give examples that illustrate this result.

Source: The Journal of Computational Finance

DOI: 10.21314/jcf.2005.126

Authors: Artan Borici, Hans-Jakob Lüthi

Institutions: University of Tirana, ETH Zurich

Language: English

Topic: Stochastic processes and financial applications

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W2292340678

FWCI: 1.71

Cites: 11

Cited by: 16

Related to: 10