Abstract
AbstractIn this manuscript, we present a novel and highly accurate wavelet‐based approximation technique to explore the sensitivities and value of American options diagnosed by linear complementarity problems. For a detailed analysis of such financially relevant problems, we transform the actual final value problem into a dimensionless initial value problem. To avoid the unacceptable large truncation error, the unbounded domain is trimmed into a bounded domain. A remarkable observation is that to investigate the various physical and numerical aspects of the options' sensitivities; the proposed scheme is efficient as it explicitly provides the numerical approximation of all the derivatives of the solution function. The multiresolution technique of the wavelets and the convergence of the proposed wavelet scheme are comprehensively analyzed. The wavelet analysis is accompanied by illustrative examples to demonstrate the proficiency and robustness of the present method coupled with graphical representations. It has been shown that the present method is efficient to solve free boundary problems. It is worthy to note that the highly accurate and promising computational results are enough to confirm the performance of the proposed method. The simulated results of options' Greeks analyzed and discussed have vast applications in different financial institutes and trading markets.
Published Version
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callMore From: Numerical Methods for Partial Differential Equations
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
