Abstract
In this article, we propose a super-fast computational algorithm for three-asset equity-linked securities (ELS) using the finite difference method (FDM). ELS is a very popular investment product in South Korea. There are one-, two-, and three-asset ELS. The three-asset ELS is the most popular financial product among them. FDM has been used for pricing the one-and two-asset ELS because it is accurate. However, the three-asset ELS is still priced using the Monte Carlo simulation (MCS) due to the curse of dimensionality for FDM. To overcome the limitation of dimension for FDM, we propose a systematic non-uniform grid with an explicit Euler scheme and an optimal implementation of the algorithm. The computational time is less than 6 s. We perform standard ELS option pricing and compare the results from the fast FDM with the ones from MCS. The computational results confirm the superiority and practicality of the proposed algorithm.
Original language | English |
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Article number | 307 |
Journal | Mathematics |
Volume | 8 |
Issue number | 3 |
DOIs | |
Publication status | Published - 2020 Mar 1 |
Bibliographical note
Funding Information:Funding: The corresponding author (Junseok Kim) was supported by the Brain Korea 21 Plus (BK 21) from the Ministry of Education of Korea.
Publisher Copyright:
© 2020 by the authors.
Keywords
- Black-scholes equations
- Equity-linked securities
- Finite difference method
- Super-fast computation
ASJC Scopus subject areas
- General Mathematics