ISSN:
1434-6036
Keywords:
PACS. 02.50.Ey Stochastic processes – 05.10.Gg Stochastic analysis methods (Fokker-Planck, Langevin, etc.) – 89.75.-k Complex systems
Source:
Springer Online Journal Archives 1860-2000
Topics:
Physics
Notes:
Abstract: An efficient computational algorithm to price financial derivatives is presented. It is based on a path integral formulation of the pricing problem. It is shown how the path integral approach can be worked out in order to obtain fast and accurate predictions for the value of a large class of options, including those with path-dependent and early exercise features. As examples, the application of the method to European and American options in the Black-Scholes model is illustrated. The results of the algorithm are compared with those obtained with the standard procedures known in the literature and found to be in good agreement.
Type of Medium:
Electronic Resource
URL:
http://dx.doi.org/10.1140/epjb/e20020147
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