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Costeanu
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Joined: December 29th, 2008, 5:33 pm

Pricing Basket Options using Black-Scholes by BDF2 after using PCA for dimension reduction

December 20th, 2013, 7:13 pm

Hi radhikanangia, I didn't look at your code, and I don't think I will have time to. I have to say I like a lot the paper that you are trying to replicate.One thing: I don't think you need any finite differences. For the setup in the paper, quadrature is enough. I believe it will be much faster and more stable than using finite differences. Where finite differences come into play, and where you could write a nice project, is if the option is American. Also, I guess with some thinking the model could be modified to account for smile, but this seems to me to be quite a bit more complicated. Good luck.
 
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radhikanangia
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Joined: March 9th, 2013, 6:57 pm

Pricing Basket Options using Black-Scholes by BDF2 after using PCA for dimension reduction

December 23rd, 2013, 10:02 am

Yes @Cuchulainn, It has been presented. It was for a course I had taken this semester.
Last edited by radhikanangia on December 22nd, 2013, 11:00 pm, edited 1 time in total.
 
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spursfan
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Joined: October 7th, 2001, 3:43 pm

Pricing Basket Options using Black-Scholes by BDF2 after using PCA for dimension reduction

December 23rd, 2013, 12:44 pm

this is worth readinghttp://www.wilmott.com/pdfs/070430_baskets.pdf
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