Volume 47, Number 2, March-April 2013
|Page(s)||449 - 469|
|Published online||11 January 2013|
A priori error estimates for reduced order models in finance∗
Universität Trier, Fachbereich IV, Abteilung Mathematik, 54286 Trier,
Revised: 18 April 2012
Mathematical models for option pricing often result in partial differential equations. Recent enhancements are models driven by Lévy processes, which lead to a partial differential equation with an additional integral term. In the context of model calibration, these partial integro differential equations need to be solved quite frequently. To reduce the computational cost the implementation of a reduced order model has shown to be very successful numerically. In this paper we give a priori error estimates for the use of the proper orthogonal decomposition technique in the context of option pricing models.
Mathematics Subject Classification: 35K15 / 65M15 / 91G80
Key words: Option pricing models / proper orthogonal decomposition / a priori error estimate
© EDP Sciences, SMAI, 2013
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