Please use this identifier to cite or link to this item: http://hdl.handle.net/10397/30415
Title: On power penalty methods for linear complementarity problems arising from American option pricing
Authors: Sun, Z
Liu, Z
Yang, X 
Keywords: American option pricing
Iterative method
Linear complementarity problem
Monotone convergence
Penalized equations
Issue Date: 2015
Publisher: Springer
Source: Journal of global optimization, 2015 How to cite?
Journal: Journal of global optimization 
Abstract: Power penalty methods for solving a linear parabolic complementarity problem arising from American option pricing have attracted much attention. These methods require us to solve a series of systems of nonlinear equations (called penalized equations). In this paper, we first study the relationships among the solutions of penalized equations under appropriate conditions. Additionally, since these penalized equations are neither smooth nor convex, some existing algorithms, such as Newton method, cannot be applied directly to solve them. We shall apply the nonlinear Jacobian method to solve penalized equations and verify that the iteration sequence generated by the method converges monotonically to the solution of the penalized equation. Some numerical results confirm the theoretical results and the efficiency of the proposed algorithm.
URI: http://hdl.handle.net/10397/30415
ISSN: 0925-5001
EISSN: 1573-2916
DOI: 10.1007/s10898-015-0291-6
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