Title: Solution of option pricing equations using orthogonal polynomial expansion
Authors: Baustian, Falko
Filipová, Kateřina
Pospíšil, Jan
Citation: BAUSTIAN, F. FILIPOVÁ, K. POSPÍŠIL, J. Solution of option pricing equations using orthogonal polynomial expansion. Applications of Mathematics, 2021, roč. 66, č. 4, s. 553-582. ISSN: 0862-7940
Issue Date: 2021
Publisher: Springer
Document type: postprint
URI: 2-s2.0-85103659388
ISSN: 0862-7940
Keywords in different language: orthogonal polynomial expansion;Hermite polynomials;Laguerre polynomials;Heston model;option pricing
Abstract in different language: In this paper we study both analytic and numerical solutions of option pricing equations using systems of orthogonal polynomials. Using a Galerkin-based method, we solve the parabolic partial diferential equation for the Black-Scholes model using Hermite polynomials and for the Heston model using Hermite and Laguerre polynomials. We compare obtained solutions to existing semi-closed pricing formulas. Special attention is paid to the solution of Heston model at the boundary with vanishing volatility.
Rights: © Institute of Mathematics, Czech Academy of Sciences 2021
Appears in Collections:Články / Articles (KMA)

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Please use this identifier to cite or link to this item: http://hdl.handle.net/11025/46650

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