Journal of Computational Finance

Risk.net

Krylov subspace reduction and its extensions for option pricing

Vladimir Druskin and Leonid Knizhnerman, Tanya Tamarchenko, Sergio Kostek

ABSTRACT

Computationally expensive time-stepping is the bottleneck of finite-difference methods used for valuing multi-asset options. The authors consider a novel algorithm with radically accelerated convergence, which is based on an optimal approximation of the matrix exponential. This algorithm is modified to compute the price of American options. A reduction of one order in computational time compared with one of the most efficient variants of the Crank-Nicolson scheme is observed with a two-factor convertible bond model.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to Risk.net? View our subscription options

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here