Wavelets optimization method for evaluation of fractional partial differential equations: an application to financial modelling

被引:91
作者
Ara, Asmat [1 ]
Khan, Najeeb Alam [2 ]
Razzaq, Oyoon Abdul [3 ]
Hameed, Tooba [2 ]
Raja, Muhammad Asif Zahoor [4 ]
机构
[1] Muhammad Ali Jinnah Univ, Dept Comp Sci, Karachi 75400, Pakistan
[2] Univ Karachi, Dept Math, Karachi 75270, Pakistan
[3] Bahria Univ, Dept Humanities & Nat Sci, Karachi 75260, Pakistan
[4] COMSATS Inst Informat Technol, Dept Elect Engn, Attock, Pakistan
来源
ADVANCES IN DIFFERENCE EQUATIONS | 2018年
关键词
pricing models; Levy processes; wavelets approximation; optimization; STOCHASTIC VOLATILITY; RETURNS;
D O I
10.1186/s13662-017-1461-2
中图分类号
O29 [应用数学];
学科分类号
070104 ;
摘要
In the present paper, we employ a wavelets optimization method is employed for the elucidations of fractional partial differential equations of pricing European option accompanied by a Levy model. We apply the Legendre wavelets optimization method (LWOM) to optimize the governing problem. The novelty of the proposed method is the inclusion of differential evolution algorithm (DE) in the Legendre wavelets method for the optimized approximations of the unknown terms of the Legendre wavelets. Sequentially, the functions and components of the pricing models are discretized by utilizing the operational matrix of fractional integration of Legendre wavelets. Illustratively, the implementation of the LWOM is exemplified on a pricing European option Levy model and successfully depicted the stock paths. Moreover, comparison analysis of the Black-Scholes model with a class of Levy model and LWOM with q-homotopy analysis transform method (q-HATM) is also deliberated out. Accordingly, the technique is found to be appropriate for financial models that can be expressed as partial differential equations of integer and fractional orders, subjected to initial or boundary conditions.
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页数:13
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