@techreport{8e71924659a2488b9de74cf632f691b0,
title = "Pricing Options under Jump-Diffusion Models by Adaptive Radial Basic Functions",
abstract = "The aim of this paper is to show that option prices in jump-diffusion models can be computed using meshless methods based on Radial Basis Function (RBF) interpolation instead of traditional mesh-based methods like Finite Differences (FDM) or Finite Elements (FEM). The RBF technique is demonstrated by solving the partial integro-differential equation for American and European options on non-dividend-paying stocks in the Merton jump-diffusion model, using the Inverse Multiquadric Radial Basis Function (IMQ). The method can in principle be extended to Levy-models. Moreover, an adaptive method is proposed to tackle the accuracy problem caused by a singularity in the initial condition so that the accuracy in option pricing in particular for small time to maturity can be improved.",
keywords = "the Merton Jump-diffusions Model, singularity, option pricing, adaptive method, Radial Basis Function, Levy processes, parabolic partial integro-differential equations",
author = "Ron Chan",
note = "ID number: 6/10",
year = "2010",
month = jun,
day = "7",
language = "English",
series = "Bath Economics Research Working Papers",
publisher = "Department of Economics, University of Bath",
number = "6/10",
type = "WorkingPaper",
institution = "Department of Economics, University of Bath",
}