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.
@article{M2AN_2013__47_2_449_0,
author = {Sachs, Ekkehard W. and Schu, Matthias},
title = {A priori error estimates for reduced order models in finance},
journal = {ESAIM: Mathematical Modelling and Numerical Analysis - Mod\'elisation Math\'ematique et Analyse Num\'erique},
volume = {47},
year = {2013},
pages = {449-469},
doi = {10.1051/m2an/2012039},
zbl = {1268.91182},
language = {en},
url = {http://dml.mathdoc.fr/item/M2AN_2013__47_2_449_0}
}
Sachs, Ekkehard W.; Schu, Matthias. A priori error estimates for reduced order models in finance. ESAIM: Mathematical Modelling and Numerical Analysis - Modélisation Mathématique et Analyse Numérique, Tome 47 (2013) pp. 449-469. doi : 10.1051/m2an/2012039. http://gdmltest.u-ga.fr/item/M2AN_2013__47_2_449_0/
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