Show simple item record

dc.contributor.authorLesmana, D.
dc.contributor.authorWang, Song
dc.date.accessioned2017-01-30T15:29:53Z
dc.date.available2017-01-30T15:29:53Z
dc.date.created2015-05-22T08:32:22Z
dc.date.issued2015
dc.identifier.citationLesmana, D. and Wang, S. 2015. Penalty approach to a nonlinear obstacle problem governing American put option valuation under transaction costs. Applied Mathematics and Computation. 251: pp. 318-330.
dc.identifier.urihttp://hdl.handle.net/20.500.11937/46891
dc.identifier.doi10.1016/j.amc.2014.11.060
dc.description.abstract

We propose a penalty method for a finite-dimensional nonlinear complementarity problem (NCP) arising from the discretization of the infinite-dimensional free boundary/obstacle problem governing the valuation of American options under transaction costs. In this method, the NCP is approximated by a system of nonlinear equations containing a power penalty term. We show that the mapping involved in the system is continuous and strongly monotone. Thus, the unique solvability of both the NCP and the penalty equation and the exponential convergence of the solution to the penalty equation to that of the NCP are guaranteed by an existing theory. Numerical results will be presented to demonstrate the convergence rates and usefulness of this penalty method.

dc.publisherElsevier
dc.subjectAmerican option pricing
dc.subjectConvergence
dc.subjectNonlinear Black–Scholes operator
dc.subjectNonlinear complementarity problem
dc.subjectPenalty method
dc.subjectObstacle problem
dc.titlePenalty approach to a nonlinear obstacle problem governing American put option valuation under transaction costs
dc.typeJournal Article
dcterms.source.volume251
dcterms.source.startPage318
dcterms.source.endPage330
dcterms.source.issn0096-3003
dcterms.source.titleApplied Mathematics & Computation
curtin.departmentDepartment of Mathematics and Statistics
curtin.accessStatusFulltext not available


Files in this item

Thumbnail

This item appears in the following Collection(s)

Show simple item record