Numerical Methods for Long-term Impulse Control Problems in Finance
Author | : Amélie Bélanger |
Publisher | : |
Total Pages | : 223 |
Release | : 2008 |
ISBN-10 | : 0494432381 |
ISBN-13 | : 9780494432389 |
Rating | : 4/5 (81 Downloads) |
Book excerpt: Several of the more complex optimization problems in finance can be characterized as impulse control problems. Impulse control problems can be written as quasi-variational inequalities, which are then solved to determine the optimal control strategy. Since most quasi-variational inequalities do not have analytical solutions, numerical methods are generally used in the solution process. In this thesis, the impulse control problem framework is applied to value two complex long-term option-type contracts. Both pricing problems considered are cast as impulse control problems and solved using an implicit approach based on either the penalty method or the operator splitting scheme.