PSU Mark
Eberly College of Science Mathematics Department

Meeting Details

For more information about this meeting, contact Anna Mazzucato, Manfred Denker, Victor Nistor.

Title:Option pricing by analytical approximations to solutions of parabolic PDEs
Seminar:Probability and Financial Mathematics Seminar
Speaker:Wen Cheng, PSU
Abstract:
One way to price European options is to solve the associated parabolic equations. Therefore many numerical methods (FDM,FEM,etc) can be applied. From the calibration point of view, a better alternative is to solve the parabolic equations analytically. In this talk I will first derive the pricing equations for European options by a no-arbitrage argument, and then present the newly developed Dyson-Taylor Commutator method that can be used to approximate the Green's functions (pricing kernel) of parabolic equations, as a result the European option price is just the convolution of the pricing kernel and the payoff function. In the end, numerical comparison will be provided and open problems will also be discussed.

Room Reservation Information

Room Number:MB315
Date:02 / 15 / 2011
Time:04:00pm - 05:00pm