Research Data from University of London Update Understanding of Derivatives Research (Options pricing under the one-dimensional jump-diffusion model using the radial basis function interpolation scheme)
By a News Reporter-Staff News Editor at Journal of Mathematics -- Fresh data on Derivatives Research are presented in a new report. According to news originating from London, United Kingdom, by VerticalNews correspondents, research stated, "This paper will demonstrate how European and American option prices can be computed under the jump-diffusion model using the radial basis function (RBF) interpolation scheme. The RBF interpolation scheme is demonstrated by solving an option pricing formula, a one-dimensional partial integro-differential equation (PIDE)."
Our news journalists obtained a quote from the research from the University of London, "We select the cubic spline radial basis function and adopt a simple numerical algorithm (Briani et al. in Calcolo 44:33-57, 2007) to establish a finite computational range for the improper integral of the PIDE. This algorithm reduces the truncation error of approximating the improper integral. As a result, we are able to achieve a higher approximation accuracy of the integral with the application of any quadrature. Moreover, we a numerical technique termed cubic spline factorisation (Bos and Salkauskas in J Approx Theory 51:81-88, 1987) to solve the inversion of an ill-conditioned RBF interpolant, which is a well-known research problem in the RBF field."
According to the news editors, the research concluded: "Finally, our numerical experiments show that in the European case, our RBF-interpolation solution is second-order accurate for spatial variables, while in the American case, it is second-order accurate for spatial variables and first-order accurate for time variables."
For more information on this research see: Options pricing under the one-dimensional jump-diffusion model using the radial basis function interpolation scheme. Review of Derivatives Research, 2014;17(2):161-189. Review of Derivatives Research can be contacted at: Springer, 233 Spring St, New York, NY 10013, USA. (Springer - www.springer.com; Review of Derivatives Research - www.springerlink.com/content/1380-6645/)
The news correspondents report that additional information may be obtained from R.T.L. Chan, University of London, Sch Econ Math & Stat, London WC1E 7HX, United Kingdom.
Keywords for this news article include: London, Europe, United Kingdom, Derivatives Research
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