scholarly journals Valuation of Option Pricing with Meshless Radial Basis Functions Approximation

2020 ◽  
pp. 60-70
Author(s):  
M. O. Durojaye ◽  
J. K. Odeyemi
Keyword(s):  
Radial Basis Functions ◽  
Numerical Solutions ◽  
Interpolation Method ◽  
Option Price ◽  
Basis Functions ◽  
Time Stepping ◽  
Runge Kutta Method ◽  
Black Scholes ◽  
Radial Basis ◽  
Marching Method

This work focuses on valuation scheme of European and American options of single asset with meshless radial basis approximations. The prices are governed by Black – Scholes equations. The option price is approximated with three infinitely smooth positive definite radial basis functions (RBFs), namely, Gaussian (GA), Multiquadrics (MQ), Inverse Multiquadrics (IMQ). The RBFs were used for discretizing the space variables while Runge-Kutta method was used as a time-stepping marching method to integrate the resulting systems of differential equations. Numerical examples are shown to illustrate the strength of the method developed. The findings show that the RBFs has proven to be adaptable interpolation method because it does not depend on the locations of the approximation nodes which have overcome frequently evolving problems in computational finance such as slow convergent numerical solutions. Thus, the results allow concluding that the RBF-FD-GA and RBF-FD-MQ methods are well suited for modeling and analyzing Black and Scholes equation.

scholarly journals Use of radial basis functions for meshless numerical solutions applied to financial engineering barrier options

2009 ◽  
Vol 29 (2) ◽  
pp. 419-437 ◽  
Author(s):  
Gisele Tessari Santos ◽  
Maurício Cardoso de Souza ◽  
Mauri Fortes
Keyword(s):  
Boundary Conditions ◽  
Radial Basis Functions ◽  
Analytical Solutions ◽  
Financial Engineering ◽  
Numerical Solutions ◽  
Basis Functions ◽  
Barrier Options ◽  
Black Scholes ◽  
Non Linear ◽  
Radial Basis

A large number of financial engineering problems involve non-linear equations with non-linear or time-dependent boundary conditions. Despite available analytical solutions, many classical and modified forms of the well-known Black-Scholes (BS) equation require fast and accurate numerical solutions. This work introduces the radial basis function (RBF) method as applied to the solution of the BS equation with non-linear boundary conditions, related to path-dependent barrier options. Furthermore, the diffusional method for solving advective-diffusive equations is explored as to its effectiveness to solve BS equations. Cubic and Thin-Plate Spline (TPS) radial basis functions were employed and evaluated as to their effectiveness to solve barrier option problems. The numerical results, when compared against analytical solutions, allow affirming that the RBF method is very accurate and easy to be implemented. When the RBF method is applied, the diffusional method leads to the same results as those obtained from the classical formulation of Black-Scholes equation.

scholarly journals Numerical Solutions of Two-Way Propagation of Nonlinear Dispersive Waves Using Radial Basis Functions

2014 ◽  
Vol 2014 ◽  
pp. 1-8 ◽  
Author(s):  
Pablo U. Suárez ◽  
J. Héctor Morales
Keyword(s):  
Radial Basis Functions ◽  
Numerical Solutions ◽  
Nonlinear Partial Differential Equation ◽  
Basis Functions ◽  
Boussinesq System ◽  
Conserved Quantities ◽  
Dispersive Waves ◽  
Runge Kutta Method ◽  
Solitary Solutions ◽  
Radial Basis

We obtain the numerical solution of a Boussinesq system for two-way propagation of nonlinear dispersive waves by using the meshless method, based on collocation with radial basis functions. The system of nonlinear partial differential equation is discretized in space by approximating the solution using radial basis functions. The discretization leads to a system of coupled nonlinear ordinary differential equations. The equations are then solved by using the fourth-order Runge-Kutta method. A stability analysis is provided and then the accuracy of method is tested by comparing it with the exact solitary solutions of the Boussinesq system. In addition, the conserved quantities are calculated numerically and compared to an exact solution. The numerical results show excellent agreement with the analytical solution and the calculated conserved quantities.

Fundamental Solutions of PDEs as Radial Basis Functions in Multivariate Interpolation

2007 ◽  
Vol 7 (4) ◽  
pp. 321-340
Author(s):  
A. Masjukov
Keyword(s):  
Radial Basis Functions ◽  
Interpolation Method ◽  
A Priori ◽  
Fundamental Solutions ◽  
Basis Functions ◽  
Scale Parameters ◽  
Radial Basis ◽  
Undecidable Problem ◽  
The Right ◽  
Smooth Approximations

AbstractFor bivariate and trivariate interpolation we propose in this paper a set of integrable radial basis functions (RBFs). These RBFs are found as fundamental solutions of appropriate PDEs and they are optimal in a special sense. The condition number of the interpolation matrices as well as the order of convergence of the inter- polation are estimated. Moreover, the proposed RBFs provide smooth approximations and approximate fulfillment of the interpolation conditions. This property allows us to avoid the undecidable problem of choosing the right scale parameter for the RBFs. Instead we propose an iterative procedure in which a sequence of improving approx- imations is obtained by means of a decreasing sequence of scale parameters in an a priori given range. The paper provides a few clear examples of the advantage of the proposed interpolation method.

COMPARATIVE STUDY OF THE MULTIQUADRIC AND THIN-PLATE SPLINE RADIAL BASIS FUNCTIONS FOR THE TRANSIENT-CONVECTIVE DIFFUSION PROBLEMS

2006 ◽  
Vol 17 (08) ◽  
pp. 1151-1169 ◽  
Author(s):  
A. DURMUS ◽  
I. BOZTOSUN ◽  
F. YASUK
Keyword(s):  
Radial Basis Functions ◽  
Thin Plate ◽  
Numerical Solutions ◽  
Convective Diffusion ◽  
Finite Difference Methods ◽  
Basis Functions ◽  
Thin Plate Spline ◽  
Collocation Methods ◽  
Radial Basis ◽  
Diffusion Problems

The numerical solutions of the unsteady transient-convective diffusion problems are investigated by using multiquadric (MQ) and thin-plate spline (TPS) radial basis functions (RBFs) based on mesh-free collocation methods with global basis functions. The results of radial basis functions are compared with the mesh-dependent boundary element and finite difference methods as well as the analytical solution for high Péclet numbers. It is reported that for low Péclet numbers, MQ-RBF provides excellent agreement, while for high Péclet numbers, TPS-RBF is better than MQ-RBF.

scholarly journals Three-Dimensional Swirl Flow Velocity-Field Reconstruction Using a Neural Network With Radial Basis Functions

2001 ◽  
Vol 123 (4) ◽  
pp. 920-927 ◽  
Author(s):  
J. Pruvost ◽  
J. Legrand ◽  
P. Legentilhomme
Keyword(s):  
Neural Network ◽  
Velocity Field ◽  
Radial Basis Functions ◽  
Swirling Flow ◽  
Interpolation Method ◽  
Measurement Techniques ◽  
Three Dimensional ◽  
Basis Functions ◽  
Hydrodynamic Characteristics ◽  
Radial Basis

For many studies, knowledge of continuous evolution of hydrodynamic characteristics is useful but generally measurement techniques provide only discrete information. In the case of complex flows, usual numerical interpolating methods appear to be not adapted, as for the free decaying swirling flow presented in this study. The three-dimensional motion involved induces a spatial dependent velocity-field. Thus, the interpolating method has to be three-dimensional and to take into account possible flow nonlinearity, making common methods unsuitable. A different interpolation method is thus proposed, based on a neural network algorithm with Radial Basis Functions.

The meshless method of radial basis functions for the numerical solution of time fractional telegraph equation

2014 ◽  
Vol 24 (8) ◽  
pp. 1636-1659 ◽  
Author(s):  
Akbar Mohebbi ◽  
Mostafa Abbaszadeh ◽  
Mehdi Dehghan
Keyword(s):  
Radial Basis Functions ◽  
Meshless Method ◽  
Numerical Solutions ◽  
Telegraph Equation ◽  
Basis Functions ◽  
Content Type ◽  
Fractional Telegraph Equation ◽  
Radial Basis ◽  
Collocation Approach ◽  
Derivatives Of

Purpose – The purpose of this paper is to show that the meshless method based on radial basis functions (RBFs) collocation method is powerful, suitable and simple for solving one and two dimensional time fractional telegraph equation. Design/methodology/approach – In this method the authors first approximate the time fractional derivatives of mentioned equation by two schemes of orders O(τ3−α) and O(τ2−α), 1/2<α<1, then the authors will use the Kansa approach to approximate the spatial derivatives. Findings – The results of numerical experiments are compared with analytical solution, revealing that the obtained numerical solutions have acceptance accuracy. Originality/value – The results show that the meshless method based on the RBFs and collocation approach is also suitable for the treatment of the time fractional telegraph equation.

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