Random number generation and quasi-Monte Carlo methods
Random number generation and quasi-Monte Carlo methods
Numerical methods for stochastic control problems in continuous time
Numerical methods for stochastic control problems in continuous time
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We propose and test a new method for pricing American options in a high dimensional setting. The method is centred around the approximation of the associated variational inequality on an irregular grid. We approximate the partial differential operator on this grid by appealing to the SDE representation of the stock process and computing the logarithm of the transition probability matrix of an approximating Markov chain. The results of numerical tests in five dimensions are promising.