We are aimed to develop a fast and direct algorithm to solve linear complementarity problems (LCP's) arising from option pricing problems. We discretize the free boundary problem of American options in temporal direction and obtain a sequence of linear complementarity problems (LCP's) in the finite dimensional Euclidian space $\mathbb{R}^m$. We develop a fast and direct algorithm based on the active set strategy to solve the LCP's. The active set strategy in general needs $O(2^m m^3)$ operations to solve $m$ dimensional LCP's. Using Thomas algorithm, we develop an algorithm with order of complexity $O(m)$ which can extremely speed up the computations.
Moradipour, M. (2021). An effective algorithm to solve option pricing problems. International Journal of Nonlinear Analysis and Applications, 12(1), 261-271. doi: 10.22075/ijnaa.2021.4782
MLA
Mojtaba Moradipour. "An effective algorithm to solve option pricing problems". International Journal of Nonlinear Analysis and Applications, 12, 1, 2021, 261-271. doi: 10.22075/ijnaa.2021.4782
HARVARD
Moradipour, M. (2021). 'An effective algorithm to solve option pricing problems', International Journal of Nonlinear Analysis and Applications, 12(1), pp. 261-271. doi: 10.22075/ijnaa.2021.4782
VANCOUVER
Moradipour, M. An effective algorithm to solve option pricing problems. International Journal of Nonlinear Analysis and Applications, 2021; 12(1): 261-271. doi: 10.22075/ijnaa.2021.4782
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