Computable error bounds of multidimensional Euler inversion and their financial applications

Transform inversion is an efficient approximation procedure in operations research, yet the inversion results are sometimes unstable which calls for comprehensive error analysis. This article proposes a multidimensional Euler inversion (MEI) algorithm with computable error bounds. We design mild suf...

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Veröffentlicht in:Operations research letters Jg. 50; H. 6; S. 726 - 731
Hauptverfasser: Zeng, Pingping, Shi, Chao
Format: Journal Article
Sprache:Englisch
Veröffentlicht: Elsevier B.V 01.11.2022
Schlagworte:
Barrier option
Discretization error
Joint probability of default
Multidimensional Euler inversion
Truncation error
Barrier option
Discretization error
Joint probability of default
Truncation error
Multidimensional Euler inversion
ISSN:0167-6377, 1872-7468
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Abstract Transform inversion is an efficient approximation procedure in operations research, yet the inversion results are sometimes unstable which calls for comprehensive error analysis. This article proposes a multidimensional Euler inversion (MEI) algorithm with computable error bounds. We design mild sufficient conditions that validate the inversion formula, and provide closed-form upper bounds of the inversion errors. Numerical experiments are conducted to compute the joint probability of default and barrier option prices under complicated stochastic models, and output the associated error bounds.
AbstractList Transform inversion is an efficient approximation procedure in operations research, yet the inversion results are sometimes unstable which calls for comprehensive error analysis. This article proposes a multidimensional Euler inversion (MEI) algorithm with computable error bounds. We design mild sufficient conditions that validate the inversion formula, and provide closed-form upper bounds of the inversion errors. Numerical experiments are conducted to compute the joint probability of default and barrier option prices under complicated stochastic models, and output the associated error bounds.
Author Zeng, Pingping
Shi, Chao
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Cites_doi 10.1214/aoap/1177004968
10.1137/090750421
10.21314/JCF.1999.043
10.1016/j.jedc.2022.104518
10.1287/mnsc.48.8.1086.166
10.1007/BF01158520
10.1239/aap/1409319559
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Issue 6
Keywords Barrier option
Discretization error
Joint probability of default
Truncation error
Multidimensional Euler inversion
Language English
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Snippet Transform inversion is an efficient approximation procedure in operations research, yet the inversion results are sometimes unstable which calls for...
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StartPage 726
SubjectTerms Barrier option
Discretization error
Joint probability of default
Multidimensional Euler inversion
Truncation error
Title Computable error bounds of multidimensional Euler inversion and their financial applications
URI https://dx.doi.org/10.1016/j.orl.2022.10.013
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