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 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.

Modelling meso-scale diffusion processes in stochastic fluid bio-membranes

The space–time dynamics of rigid inhomogeneities (inclusions) free to move in a randomly fluctuating fluid bio-membrane is derived and numerically simulated as a function of the membrane shape changes. Both vertically placed (embedded) inclusions and horizontally placed (surface) inclusions are considered. The energetics of the membrane, as a two-dimensional (2D) meso-scale continuum sheet, is described by the Canham–Helfrich Hamiltonian, with the membrane height function treated as a stochastic process. The diffusion parameter of this process acts as the link coupling the membrane shape fluctuations to the kinematics of the inclusions. The latter is described via Ito stochastic differential equation. In addition to stochastic forces, the inclusions also experience membrane-induced deterministic forces. Our aim is to simulate the diffusion-driven aggregation of inclusions and show how the external inclusions arrive at the sites of the embedded inclusions. The model has potential use in such emerging fields as designing a targeted drug delivery system.

Stochastic monotonicity and duality for continuous time Markov chains with general q-Matrix

The key problems in discussing stochastic monotonicity and duality for continuous time Markov chains are to give the criteria for existence and uniqueness and to construct the associated monotone processes in terms of their infinitesimal q -matrices. In their recent paper, Chen and Zhang [6] discussed these problems under the condition that the given q-matrix Q is conservative. The aim of this paper is to generalize their results to a more general case, i.e., the given q-matrix Q is not necessarily conservative. New problems arise 'in removing the conservative assumption. The existence and uniqueness criteria for this general case are given in this paper. Another important problem, the construction of all stochastically monotone Q-processes, is also considered.

Stochastic comparability and dual q-functions

In this paper we discuss the relationship and characterization of stochastic comparability, duality, and Feller–Reuter–Riley transition functions which are closely linked with each other for continuous time Markov chains. A necessary and sufficient condition for two Feller minimal transition functions to be stochastically comparable is given in terms of their density q-matrices only. Moreover, a necessary and sufficient condition under which a transition function is a dual for some stochastically monotone q-function is given in terms of, again, its density q-matrix. Finally, for a class of q-matrices, the necessary and sufficient condition for a transition function to be a Feller–Reuter–Riley transition function is also given.

An improved result of exponential stability of stochastic semilinear evolution equations

Sufficient conditions for the exponential stability of a class ofnonlinear, non-autonomous stochastic differential equations in infinitedimensions are studied. The analysis consists of introducing a suitableapproximating solution systems and using a limiting argument to pass onstability of strong solutions to mild ones. As a consequence, the classicalcriteriaof stability in A. Ichikawa [8] are improved and extended to cover a class ofnon-autonomous stochastic evolution equations.Two examples are investigated to illustrate our theory.

Moment decay rates of solutions of stochastic differential equations

The objective of this paper is to investigate the p-ίh moment asymptotic stability decay rates for certain finite-dimensional Itό stochastic differential equations. Motivated by some practical examples, the point of our analysis is a special consideration of general decay speeds, which contain as a special case the usual exponential or polynomial type one, to meet various situations. Sufficient conditions for stochastic differential equations (with variable delays or not) are obtained to ensure their asymptotic properties. Several examples are studied to illustrate our theory.

A distributed algorithm for European options with nonlinear volatility

A distributed algorithm is developed to solve nonlinear Black-Scholes equations in the hedging of portfolios. The algorithm is based on an approximate inverse Laplace transform and is particularly suitable for problems that do not require detailed knowledge of each intermediate time steps.

Investigation of the permeation of model formulations and a commercial ibuprofen formulation in Carbosil® and human skin using ATR-FTIR and multivariate spectral analysis

The purpose of the present study was to use attenuated total reflectance-Fourier transform infrared spectroscopy (ATR-FTIR) and target factor analysis (TFA) to investigate the permeation of model drugs and formulation components through Carbosil® membrane and human skin. Diffusion studies of saturated solutions in 50:50 water/ethanol of methyl paraben (MP), ibuprofen (IBU) and caffeine (CF) were performed on Carbosil® membrane. The spectroscopic data were analysed by target factor analysis, and evolution profiles of the signal for each component (i.e. the drug, water, ethanol and membrane) over time were obtained. Results showed that the data were successfully deconvoluted as correlations between factors from the data and reference spectra of the components, were above 0.8 in all cases. Good reproducibility over three runs for the evolution profiles was obtained. From the evolution profiles it was observed that water diffused better through the Carbosil® membrane than ethanol, confirming the hydrophilic properties of the Carbosil® membrane used. IBU diffused slower compared with MP and CF. The evolution profile of CF was very similar to that of water, probably because of the high solubility of CF in water, indicating that both compounds are diffusing concurrently. The second part of the work involved a study of the evolution profiles of the components of a commercial topical gel containing 5% (w/w) of ibuprofen as it permeated through human skin. Although the system was much more complex, data were still successfully deconvoluted and the different components of the formulation identified except for benzyl alcohol which might be attributed to the low concentrations of benzyl alcohol used in topical formulations. (C) 2009 Elsevier B.V. All rights reserved.

Local examination of skin diffusion using FTIR spectroscopic imaging and multivariate target factor analysis

In the context of trans-dermal drug delivery it is very important to have mechanistic insight into the barrier function of the skin's stratum corneum and the diffusion mechanisms of topically applied drugs. Currently spectroscopic imaging techniques are evolving which enable a spatial examination of various types of samples in a dynamic way. ATR-FTIR imaging opens up the possibility to monitor spatial diffusion profiles across the stratum corneum of a skin sample. Multivariate data analyses methods based on factor analysis are able to provide insight into the large amount of spectroscopically complex and highly overlapping signals generated. Multivariate target factor analysis was used for spectral resolution and local diffusion profiles with time through stratum corneum. A model drug, 4-cyanophenol in polyethylene glycol 600 and water was studied. Results indicate that the average diffusion profiles between spatially different locations show similar profiles despite the heterogeneous nature of the biological sample and the challenging experimental set-up.