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Linear-time accurate lattice algorithms for tail conditional expectation
- Source :
- Algorithmic Finance. 3:87-140
- Publication Year :
- 2014
- Publisher :
- IOS Press, 2014.
-
Abstract
- This paper proposes novel lattice algorithms to compute tail conditional expectation of European calls and puts in linear time. We incorporate the technique of prefix-sum into tilting, trinomial, and extrapolation algorithms as well as some syntheses of these algorithms. Furthermore, we introduce fractional-step lattices to help reduce interpolation error in the extrapolation algorithms. We demonstrate the efficiency and accuracy of these algorithms with numerical results. A key finding is that combining the techniques of tilting lattice, extrapolation, and fractional steps substantially increases speed and accuracy.
Details
- ISSN :
- 21576203 and 21585571
- Volume :
- 3
- Database :
- OpenAIRE
- Journal :
- Algorithmic Finance
- Accession number :
- edsair.doi...........572ca248d046413bc1ba94330e0aa596