The aim of this paper is to solve numerically, using the meshless method via radial basis functions, time-space-fractional partial differential equations of type Black-Scholes. The time-fractional partial differential equation appears in several diffusion problems used in physics and engineering applications, and models subdiffusive and superdiffusive behavior of the prices at the stock market. This work shows the flexibility of the radial basis function scheme to solve multidimensional problems with several types of nodes and it also shows how to reduce the condition number of the matrices involved.
In this paper, a high-order and fast numerical method is investigated for the time-fractional Black-Scholes equation. In order to deal with the typical weak initial singularities of the solution, we construct a finite difference scheme with variable time steps, where the fractional derivative is approximated by the nonuniform Alikhanov formula and the sum-of-exponentials (SOE) technique. In the spatial direction, an average approximation with fourth-order accuracy is employed. The stability and the convergence with second-order in time and fourth-order in space of the proposed scheme are relig…
University of Tehran（德黑兰大学）；Utrecht University（乌得勒支大学）；Eindhoven University of Technology（埃因霍温理工大学）
The main aim of this study is to introduce a 2-layered Artificial Neural Network (ANN) for solving the Black-Scholes partial differential equation (PDE) of either fractional or ordinary orders. Firstly, a discretization method is employed to change the model into a sequence of Ordinary Differential Equations (ODE). Then each of these ODEs is solved with the aid of an ANN. Adam optimization is employed as the learning paradigm since it can add the foreknowledge of slowing down the process of optimization when getting close to the actual optimum solution. The model also takes advantage of fine t…
In this paper a time-fractional Black-Scholes model (TFBSM) is considered to study the price change of the underlying fractal transmission system. We develop and analyze a numerical method to solve the TFBSM governing European options. The numerical method combines the exponential B-spline collocation to discretize in space and a finite difference method to discretize in time. The method is shown to be unconditionally stable using von-Neumann analysis. Also, the method is proved to be convergent of order two in space and $2-μ$ is time, where $μ$ is order of the fractional derivative. We implem…
In this paper, we focus on the tempered subdiffusive Black-Scholes model. The main part of our work consists of the finite difference method as a numerical approach to the option pricing in the considered model. We derive the governing fractional differential equation and the related weighted numerical scheme. The proposed method has the $2-α$ order of accuracy with respect to time, where $α\in(0,1)$ is the subdiffusion parameter, and $2$ with respect to space. Furthermore, we provide the stability and convergence analysis. Finally, we present some numerical results.
Subdiffusion is a well established phenomenon in physics. In this paper we apply the subdiffusive dynamics to analyze financial markets. We focus on the financial aspect of time fractional diffusion model with moving boundary i.e. American and barrier option pricing in the subdiffusive Black-Scholes (B-S) model. Two computational methods for valuing American options in the considered model are proposed - the weighted finite difference (FD) and the Longstaff-Schwartz method. In the article it is also shown how to valuate numerically wide range of barrier options using the FD approach.
In this paper we focus on the subdiffusive Black Scholes model. The main part of our work consists of the finite difference method as a numerical approach to the option pricing in the considered model. We derive the governing fractional differential equation and the related weighted numerical scheme being a generalization of the classical Crank-Nicolson scheme. The proposed method has $2-α$ order of accuracy with respect to time where $α\in(0,1)$ is the subdiffusion parameter, and $2$ with respect to space. Further, we provide the stability and convergence analysis. Finally, we present some nu…
In this paper, we propose third-order semi-discretized schemes in space based on the tempered weighted and shifted Grünwald difference (tempered-WSGD) operators for the tempered fractional diffusion equation. We also show stability and convergence analysis for the fully discrete scheme based a Crank--Nicolson scheme in time. A third-order scheme for the tempered Black--Scholes equation is also proposed and tested numerically. Some numerical experiments are carried out to confirm accuracy and effectiveness of these proposed methods.
We introduce the tensor numerical method for solution of the $d$-dimensional optimal control problems with fractional Laplacian type operators in constraints discretized on large $n^{\otimes d}$ tensor-product Cartesian grids. The approach is based on the rank-structured approximation of the matrix valued functions of the corresponding fractional finite difference Laplacian. We solve the equation for the control function, where the system matrix includes the sum of the fractional $d$-dimensional Laplacian and its inverse. The matrix valued functions of discrete Laplace operator on a tensor gri…
This article provides an effective computational algorithm based on Legendre wavelet (LW) and standard tau approach to approximate the solution of multi-dimensional distributed order time-space fractional weakly singular integro-partial differential equation (DOT-SFWSIPDE). To the best of our understanding, the proposed computational algorithm is new and has not been previously applied for solving DOT-SFWSIPDE. The matrix representation of distributed order fractional derivatives, integer order derivatives and weakly singular kernel associated with the integral based on LWare established to fi…
Physical laws governing population dynamics are generally expressed as differential equations. Research in recent decades has incorporated fractional-order (non-integer) derivatives into differential models of natural phenomena, such as reaction-diffusion systems. In this paper, we develop a method to numerically solve a multi-component and multi-dimensional space-fractional system. For space discretization, we apply a Fourier spectral method that is suited for multidimensional PDE systems. Efficient approximation of time-stepping is accomplished with a locally one dimensional exponential time…
We combine the rough path theory and stochastic backward error analysis to develop a new framework for error analysis on numerical schemes. Based on our approach, we prove that the almost sure convergence rate of the modified Milstein scheme for stochastic differential equations driven by multiplicative multidimensional fractional Brownian motion with Hurst parameter $H\in(\frac14,\frac12)$ is $(2H-\frac12)^-$ for sufficiently smooth coefficients, which is optimal in the sense that it is consistent with the result of the corresponding implementable approximation of the Lévy area of fractional …
We consider the multidimensional space-fractional diffusion equations with spatially varying diffusivity and fractional order. Significant computational challenges are encountered when solving these equations due both to the kernel singularity in the fractional integral operator and to the resulting dense discretized operators, which quickly become prohibitively expensive to handle because of their memory and arithmetic complexities. In this work, we present a singularity-aware discretization scheme that regularizes the singular integrals through a singularity subtraction technique adapted to …
We study a class of semi-implicit Taylor-type numerical methods that are easy to implement and designed to solve multidimensional stochastic differential equations driven by a general rough noise, e.g. a fractional Brownian motion. In the multiplicative noise case, the equation is understood as a rough differential equation in the sense of T.~Lyons. We focus on equations for which the drift coefficient may be unbounded and satisfies a one-sided Lipschitz condition only. We prove well-posedness of the methods, provide a full analysis, and deduce their convergence rate. Numerical experiments sho…
