Searcharxiv⌕ Search

arXiv subjects

Daniel Sevcovic

Publications and source records attributed to Daniel Sevcovic.

50 records · Page 3Linked to original sources
arXiv2011

On a numerical approximation scheme for construction of the early exercise boundary for a class of nonlinear Black-Scholes equations

The purpose of this paper is to construct the early exercise boundary for a class of nonlinear Black--Scholes equations with a nonlinear volatility depending on the option price. We review a method how to transform the problem into a solution of a time depending nonlinear parabolic equation defined on a fixed domain. Results of numerical computation of the early exercise boundary for various nonlinear Black--Scholes equations are also presented.

q-fin.CP↗
arXiv2011

Evolution of plane curves with a curvature adjusted tangential velocity

We study evolution of a closed embedded plane curve with the normal velocity depending on the curvature, the orientation and the position of the curve. We propose a new method of tangential redistribution of points by curvature adjusted control in the tangential motion of evolving curves. The tangential velocity distributes grid points along the curve not only uniform but also lead to a suitable concentration and/or dispersion depending on the curvature. Our study is based on solutions to the governing system of nonlinear parabolic equations for the position vector, tangent angle and curvature of a curve. We furthermore present a semi-implicit numerical discretization scheme based on the flowing finite volume method. Several numerical examples illustrating capability of the new tangential redistribution method are also presented in this paper.

math.NA↗
arXiv2011

Sensitivity analysis of the early exercise boundary for American style of Asian options

In this paper we analyze American style of floating strike Asian call options belonging to the class of financial derivatives whose payoff diagram depends not only on the underlying asset price but also on the path average of underlying asset prices over some predetermined time interval. The mathematical model for the option price leads to a free boundary problem for a parabolic partial differential equation. Applying fixed domain transformation and transformation of variables we develop an efficient numerical algorithm based on a solution to a non-local parabolic partial differential equation for the transformed variable representing the synthesized portfolio. For various types of averaging methods we investigate the dependence of the early exercise boundary on model parameters.

q-fin.CP↗
arXiv2010

Comparison of numerical and analytical approximations of the early exercise boundary of the American put option

In this paper we present qualitative and quantitative comparison of various analytical and numerical approximation methods for calculating a position of the early exercise boundary of the American put option paying zero dividends. First we analyze their asymptotic behavior close to expiration. In the second part of the paper, we introduce a new numerical scheme for computing the entire early exercise boundary. The local iterative numerical scheme is based on a solution to a nonlinear integral equation. We compare numerical results obtained by the new method to those of the projected successive over relaxation method and the analytical approximation formula recently derived by Zhu.

q-fin.CP↗
arXiv2009

Early exercise boundary for American type of floating strike Asian option and its numerical approximation

In this paper we generalize and analyze the model for pricing American-style Asian options due to (Hansen and Jorgensen 2000) by including a continuous dividend rate $q$ and a general method of averaging of the floating strike. We focus on the qualitative and quantitative analysis of the early exercise boundary. The first order Taylor series expansion of the early exercise boundary close to expiry is constructed. We furthermore propose an efficient numerical algorithm for determining the early exercise boundary position based on the front fixing method. Construction of the algorithm is based on a solution to a nonlocal parabolic partial differential equation for the transformed variable representing the synthesized portfolio. Various numerical results and comparisons of our numerical method and the method developed by (Dai and Kwok 2006) are presented.

q-fin.PR↗
arXiv2009

Weakly nonlinear analysis of the Hamilton-Jacobi-Bellman equation arising from pension savings management

The main purpose of this paper is to analyze solutions to a fully nonlinear parabolic equation arising from the problem of optimal portfolio construction. We show how the problem of optimal stock to bond proportion in the management of pension fund portfolio can be formulated in terms of the solution to the Hamilton-Jacobi-Bellman equation. We analyze the solution from qualitative as well as quantitative point of view. We construct useful bounds of solution yielding estimates for the optimal value of the stock to bond proportion in the portfolio. Furthermore we construct asymptotic expansions of a solution in terms of a small model parameter. Finally, we perform sensitivity analysis of the optimal solution with respect to various model parameters and compare analytical results of this paper with the corresponding known results arising from time-discrete dynamic stochastic optimization model.

q-fin.PM↗
arXiv2009

A simple, fast and stabilized flowing finite volume method for solving general curve evolution equations

A new simple Lagrangian method with favorable stability and efficiency properties for computing general plane curve evolutions is presented. The method is based on the flowing finite volume discretization of the intrinsic partial differential equation for updating the position vector of evolving family of plane curves. A curve can be evolved in the normal direction by a combination of fourth order terms related to the intrinsic Laplacian of the curvature, second order terms related to the curvature, first order terms related to anisotropy and by a given external velocity field. The evolution is numerically stabilized by an asymptotically uniform tangential redistribution of grid points yielding the first order intrinsic advective terms in the governing system of equations. By using a semi-implicit in time discretization it can be numerically approximated by a solution to linear penta-diagonal systems of equations (in presence of the fourth order terms) or tri-diagonal systems (in the case of the second order terms). Various numerical experiments of plane curve evolutions, including, in particular, nonlinear, anisotropic and regularized backward curvature flows, surface diffusion and Willmore flows, are presented and discussed.

math.NA↗
arXiv2008

Approximate formulae for pricing zero-coupon bonds and their asymptotic analysis

We analyze analytic approximation formulae for pricing zero-coupon bonds in the case when the short-term interest rate is driven by a one-factor mean-reverting process with a volatility nonlinearly depending on the interest rate itself. We derive the order of accuracy of the analytical approximation due to Choi and Wirjanto. We furthermore give an explicit formula for a higher order approximation and we test both approximations numerically for a class of one-factor interest rate models.

q-fin.PR↗
arXiv2008

Transformation methods for evaluating approximations to the optimal exercise boundary for linear and nonlinear Black-Scholes equations

The purpose of this survey chapter is to present a transformation technique that can be used in analysis and numerical computation of the early exercise boundary for an American style of vanilla options that can be modelled by class of generalized Black-Scholes equations. We analyze qualitatively and quantitatively the early exercise boundary for a linear as well as a class of nonlinear Black-Scholes equations with a volatility coefficient which can be a nonlinear function of the second derivative of the option price itself. A motivation for studying the nonlinear Black-Scholes equation with a nonlinear volatility arises from option pricing models taking into account e.g. nontrivial transaction costs, investor's preferences, feedback and illiquid markets effects and risk from a volatile (unprotected) portfolio. We present a method how to transform the free boundary problem for the early exercise boundary position into a solution of a time depending nonlinear nonlocal parabolic equation defined on a fixed domain. We furthermore propose an iterative numerical scheme that can be used in order to find an approximation of the free boundary. In the case of a linear Black-Scholes equation we are able to derive a nonlinear integral equation for the position of the free boundary. We present results of numerical approximation of the early exercise boundary for various types of linear and nonlinear Black-Scholes equations and we discuss dependence of the free boundary on model parameters. Finally, we discuss an application of the transformation method for the pricing equation for American type of Asian options.

q-fin.CP↗
arXiv2008

Nonlinear stability of stationary solutions for curvature flow with triple junction

In this paper we analyze the motion of a network of three planar curves with a speed proportional to the curvature of the arcs, having perpendicular intersections with the outer boundary and a common intersection at a triple junction. As a main result we show that a linear stability criterion due to Ikota and Yanagida is also sufficient for nonlinear stability. We also prove local and global existence of classical smooth solutions as well as various energy estimates. Finally, we prove exponential stabilization of an evolving network starting from the vicinity of a linearly stable stationary network.

math.DS↗
arXiv2007

An iterative algorithm for evaluating approximations to the optimal exercise boundary for a nonlinear Black-Scholes equation

The purpose of this paper is to analyze and compute the early exercise boundary for a class of nonlinear Black--Scholes equations with a nonlinear volatility which can be a function of the second derivative of the option price itself. A motivation for studying the nonlinear Black--Scholes equation with a nonlinear volatility arises from option pricing models taking into account e.g. nontrivial transaction costs, investor's preferences, feedback and illiquid markets effects and risk from a volatile (unprotected) portfolio. We present a new method how to transform the free boundary problem for the early exercise boundary position into a solution of a time depending nonlinear parabolic equation defined on a fixed domain. We furthermore propose an iterative numerical scheme that can be used to find an approximation of the free boundary. We present results of numerical approximation of the early exercise boundary for various types of nonlinear Black--Scholes equations and we discuss dependence of the free boundary on various model parameters.

q-fin.CP↗
arXiv2007

Comparison study for Level set and Direct Lagrangian methods for computing Willmore flow of closed planar curves

The main goal of this paper is to present results of comparison study for the level set and direct Lagrangian methods for computing evolution of the Willmore flow of embedded planar curves. To perform such a study we construct new numerical approximation schemes for both Lagrangian as well as level set methods based on semi-implicit in time and finite/complementary volume in space discretizations. The Lagrangian scheme is stabilized in tangential direction by the asymptotically uniform grid point redistribution. Both methods are experimentally second order accurate. Moreover, we show precise coincidence of both approaches in case of various elastic curve evolutions provided that solving the linear systems in semi-implicit level set method is done in a precise way, redistancing is performed occasionally and the influence of boundary conditions on the level set function is eliminated.

math.NA↗
arXiv2007

On tangential stabilization in curvature driven flows of planar curves

We discuss the role of tangential stabilization in a curvature driven flow of planar curves. The governing system of nonlinear parabolic equations includes a nontrivial tangential velocity functional yielding a uniform redistribution of grid points along the evolving family of curves preventing numerically computed curves from forming various instabilities.

math.NA↗