A Reduced Basis Method for the Simulation of American Options

Bernard Haasdonk (1) , Julien Salomon (2) , Barbara Wohlmuth (3)

1 IANS - Institut für Angewandte Analysis und Numerische Simulation [Stuttgart]
2 CEREMADE - CEntre de REcherches en MAthématiques de la DEcision
3 LNM - Lehrstuhl fuer Numerische Mathematik

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.

Mots clés: Reduced basis; american option; variationnal inequlities; Black-Scholes

Domaines: Optimisation et contrôle [math.OC]

Bernard Haasdonk, Julien Salomon, Barbara Wohlmuth. A Reduced Basis Method for the Simulation of American Options. ENUMATH Leicester 2011 Proceedings Volume, 2013. ⟨hal-00660385⟩