Multigrid for American option pricing with stochastic volatility

The paper describes an implicit finite difference approach to the pricing of American options on assets with a stochastic volatility. A multigrid procedure is described for the fast iterative solution of the discrete linear complementarity problems that result. The accuracy and performance of this approach is improved considerably by a strike-price related analytic transformation of asset prices and adaptive time-stepping.

The implementation of an aeronautical CFD flow code onto distributed memory parallel systems

The parallelization of an industrially important in-house computational fluid dynamics (CFD) code for calculating the airflow over complex aircraft configurations using the Euler or Navier–Stokes equations is presented. The code discussed is the flow solver module of the SAUNA CFD suite. This suite uses a novel grid system that may include block-structured hexahedral or pyramidal grids, unstructured tetrahedral grids or a hybrid combination of both. To assist in the rapid convergence to a solution, a number of convergence acceleration techniques are employed including implicit residual smoothing and a multigrid full approximation storage scheme (FAS). Key features of the parallelization approach are the use of domain decomposition and encapsulated message passing to enable the execution in parallel using a single programme multiple data (SPMD) paradigm. In the case where a hybrid grid is used, a unified grid partitioning scheme is employed to define the decomposition of the mesh. The parallel code has been tested using both structured and hybrid grids on a number of different distributed memory parallel systems and is now routinely used to perform industrial scale aeronautical simulations. Copyright © 2000 John Wiley & Sons, Ltd.

Domain decomposition using a 2-level correction scheme

The PHYSICA software was developed to enable multiphysics modelling allowing for interaction between Computational Fluid Dynamics (CFD) and Computational Solid Mechanics (CSM) and Computational Aeroacoustics (CAA). PHYSICA uses the finite volume method with 3-D unstructured meshes to enable the modelling of complex geometries. Many engineering applications involve significant computational time which needs to be reduced by means of a faster solution method or parallel and high performance algorithms. It is well known that multigrid methods serve as a fast iterative scheme for linear and nonlinear diffusion problems. This papers attempts to address two major issues of this iterative solver, including parallelisation of multigrid methods and their applications to time dependent multiscale problems.

Multilevel refinement for combinatorial optimisation problems

We consider the multilevel paradigm and its potential to aid the solution of combinatorial optimisation problems. The multilevel paradigm is a simple one, which involves recursive coarsening to create a hierarchy of approximations to the original problem. An initial solution is found (sometimes for the original problem, sometimes the coarsest) and then iteratively refined at each level. As a general solution strategy, the multilevel paradigm has been in use for many years and has been applied to many problem areas (most notably in the form of multigrid techniques). However, with the exception of the graph partitioning problem, multilevel techniques have not been widely applied to combinatorial optimisation problems. In this paper we address the issue of multilevel refinement for such problems and, with the aid of examples and results in graph partitioning, graph colouring and the travelling salesman problem, make a case for its use as a metaheuristic. The results provide compelling evidence that, although the multilevel framework cannot be considered as a panacea for combinatorial problems, it can provide an extremely useful addition to the combinatorial optimisation toolkit. We also give a possible explanation for the underlying process and extract some generic guidelines for its future use on other combinatorial problems.

Multilevel refinement for combinatorial optimisation: boosting metaheuristic performance

The multilevel paradigm as applied to combinatorial optimisation problems is a simple one, which at its most basic involves recursive coarsening to create a hierarchy of approximations to the original problem. An initial solution is found, usually at the coarsest level, and then iteratively refined at each level, coarsest to finest, typically by using some kind of heuristic optimisation algorithm (either a problem-specific local search scheme or a metaheuristic). Solution extension (or projection) operators can transfer the solution from one level to another. As a general solution strategy, the multilevel paradigm has been in use for many years and has been applied to many problem areas (for example multigrid techniques can be viewed as a prime example of the paradigm). Overview papers such as [] attest to its efficacy. However, with the exception of the graph partitioning problem, multilevel techniques have not been widely applied to combinatorial problems and in this chapter we discuss recent developments. In this chapter we survey the use of multilevel combinatorial techniques and consider their ability to boost the performance of (meta)heuristic optimisation algorithms.

The parallel solution of early-exercise Asian options with stochastic volatility

This paper describes an parallel semi-Lagrangian finite difference approach to the pricing of early exercise Asian Options on assets with a stochastic volatility. A multigrid procedure is described for the fast iterative solution of the discrete linear complementarity problems that result. The accuracy and performance of this approach is improved considerably by a strike-price related analytic transformation of asset prices. Asian options are contingent claims with payoffs that depend on the average price of an asset over some time interval. The payoff may depend on this average and a fixed strike price (Fixed Strike Asians) or it may depend on the average and the asset price (Floating Strike Asians). The option may also permit early exercise (American contract) or confine the holder to a fixed exercise date (European contract). The Fixed Strike Asian with early exercise is considered here where continuous arithmetic averaging has been used. Pricing such an option where the asset price has a stochastic volatility leads to the requirement to solve a tri-variate partial differential inequation in the three state variables of asset price, average price and volatility (or equivalently, variance). The similarity transformations [6] used with Floating Strike Asian options to reduce the dimensionality of the problem are not applicable to Fixed Strikes and so the numerical solution of a tri-variate problem is necessary. The computational challenge is to provide accurate solutions sufficiently quickly to support realtime trading activities at a reasonable cost in terms of hardware requirements.