Abstract
This paper is devoted to the valuation of American multi-asset put options. It is well known that the American multi-asset put option satisfies a linear complementary problem (LCP) on an unbounded domain. We consider a penalty method in which the LCP could be reformulated into a nonlinear parabolic problem on an unbounded domain. For the unbounded computational domain, a perfectly matched layer (PML) technique is applied to truncate it. As to the resulting bounded domain problem related to the option, we use a semi-implicit finite element method (SIFEM) to solve it. The convergence of this method is analyzed in detail. Finally, we present some numerical simulations to show the validity and efficiency of the theoretical analysis.
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