SC²S Colloquium - June 29, 2011
|Date:||June 29, 2011|
|Time:||15:00 pm, s.t.|
Peter Hepperger: Pricing High-Dimensional Options with Dimension-Reduced PDEs
We consider financial contracts (options) depending on a large number of underlying assets. Computing fair prices for such derivatives leads to high-dimensional partial differential equations (PDEs). The "curse of dimensionality" makes solving these PDEs a numerically challenging task, even on sparse grids. Dimension reduction methods yield computationally tractable, low-dimensional approximations. The dimension-reduced PDEs can also be combined with Monte Carlo simulation to obtain a fast-converging algorithm.