A Reduced Basis Method for the Simulation of American Options

Details A Reduced Basis Method for the Simulation of American Options A Reduced Basis Method for the Simulation of American Options

2012-01-16

arxiv.org/abs/1201.3289v1

Mathematics

Optimization and Control

Scientific paper

We present a reduced basis method for the simulation of American option pricing. To tackle this model numerically, we formulate the problem in terms of a time dependent variational inequality. Characteristic ingredients are a POD-greedy and an angle-greedy procedure for the construction of the primal and dual reduced spaces. Numerical examples are provided, illustrating the approximation quality and convergence of our approach.

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