Financial Engineering with Finite Elements (The Wiley Finance Series) PDF
379 Pages·2005·5.078 MB·English
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Preview Financial Engineering with Finite Elements (The Wiley Finance Series)
Description:
The novel fact about this book is the use of Hermite C^1 cubics for modelling solutions to stochastic differential equations of financial derivative pricing. The calculations rely heavily on the use of the "Black Box" solver package PDE2D, written and maintained by Sewell. A result is that there are scant details for installing these methods in a user's simulation package.
The use of C^1 elements does not allow continuous computation of the Greek known as Gamma. (This is typically the second derivative of the value function with respect to the underlying price.) Using C^2 element functions would have resulted in smooth Gamma and higher order truncation errors. That would also mean more accuracy with fewer elements.
There is a frustrating lack of clear titles for many of the tables given in the book. Often too many redundant entries of tables are given with little indication of accuracy.
All told this is an interesting book but must be augmented with experimental computation and other works (not mentioned here) to be of lasting value.
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