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Polynomial programming approach to weak approximation of Lévy-driven stochastic differential equations with application to option pricing
conference contributionposted on 2012-03-19, 16:46 authored by Kenji Kashima, Reiichiro Kawai
We propose an optimization approach to weak approximation of Levy-driven stochastic differential equations. We employ a mathematical programming framework to obtain numerically upper and lower bound estimates of the target expectation, where the optimization procedure ends up with a polynomial programming problem. An advantage of our approach is that all we need is a closed form of the Levy measure, not the exact simulation knowledge of the increments or of a shot noise representation for the time discretization approximation. We present numerical examples of the computation of the moments, as well as the European call option premium, of the Doleacuteans-Dade exponential model.
CitationICCAS-SICE 2009, ICROS-SICE International Joint Conference 2009, Proceedings, 2009, pp. 3902-3907
Author affiliation/Organisation/COLLEGE OF SCIENCE AND ENGINEERING/Department of Mathematics
SourceICROS-SICE International Joint Conference, 2009, 18-21 August 2009, Fukuoka, Japan.
- AM (Accepted Manuscript)