Pricing European call options with interval-valued volatility and interest rate
We propose a novel approach to pricing European call options when both of the volatility of the underlying asset and interest are uncertain. In this approach, we formulate the option pricing problem with uncertain parameters as a partial-differential inequality constrained interval optimization prob...
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| Format: | Journal Article |
| Published: |
2024
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| Online Access: | http://purl.org/au-research/grants/arc/DP190103361 http://hdl.handle.net/20.500.11937/96006 |
| _version_ | 1848766071067115520 |
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| author | Wang, Song |
| author_facet | Wang, Song |
| author_sort | Wang, Song |
| building | Curtin Institutional Repository |
| collection | Online Access |
| description | We propose a novel approach to pricing European call options when both of the volatility of the underlying asset and interest are uncertain. In this approach, we formulate the option pricing problem with uncertain parameters as a partial-differential inequality constrained interval optimization problem. An interior penalty method is then developed for the numerical solution of the finite-dimensional optimization problem arising from the discretization of the continuous pricing problem by a finite difference scheme. A convergence theory for the penalty method is established. An algorithm based on Newton's iterative method is also proposed for solving the penalty equation. Numerical results are presented to demonstrate the effectiveness and usefulness of this approach and the numerical methods. |
| first_indexed | 2025-11-14T11:45:18Z |
| format | Journal Article |
| id | curtin-20.500.11937-96006 |
| institution | Curtin University Malaysia |
| institution_category | Local University |
| last_indexed | 2025-11-14T11:45:18Z |
| publishDate | 2024 |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | curtin-20.500.11937-960062024-11-07T04:47:27Z Pricing European call options with interval-valued volatility and interest rate Wang, Song We propose a novel approach to pricing European call options when both of the volatility of the underlying asset and interest are uncertain. In this approach, we formulate the option pricing problem with uncertain parameters as a partial-differential inequality constrained interval optimization problem. An interior penalty method is then developed for the numerical solution of the finite-dimensional optimization problem arising from the discretization of the continuous pricing problem by a finite difference scheme. A convergence theory for the penalty method is established. An algorithm based on Newton's iterative method is also proposed for solving the penalty equation. Numerical results are presented to demonstrate the effectiveness and usefulness of this approach and the numerical methods. 2024 Journal Article http://hdl.handle.net/20.500.11937/96006 10.1016/j.amc.2024.128698 http://purl.org/au-research/grants/arc/DP190103361 https://creativecommons.org/licenses/by/4.0/ fulltext |
| spellingShingle | Wang, Song Pricing European call options with interval-valued volatility and interest rate |
| title | Pricing European call options with interval-valued volatility and interest rate |
| title_full | Pricing European call options with interval-valued volatility and interest rate |
| title_fullStr | Pricing European call options with interval-valued volatility and interest rate |
| title_full_unstemmed | Pricing European call options with interval-valued volatility and interest rate |
| title_short | Pricing European call options with interval-valued volatility and interest rate |
| title_sort | pricing european call options with interval-valued volatility and interest rate |
| url | http://purl.org/au-research/grants/arc/DP190103361 http://hdl.handle.net/20.500.11937/96006 |