A splitting method for fully nonlinear degenerate parabolic PDEs

Xiaolu Tan (École Polytechnique)

Abstract


Motivated by applications in Asian option pricing, optimal commodity trading etc., we propose a splitting scheme for a fully nonlinear degenerate parabolic PDEs. The splitting scheme generalizes the probabilistic scheme of Fahim, Touzi and Warin to the degenerate case. We also provide a simulation-regression method to make the splitting scheme implementable. General convergence as well as rate of convergence are obtained under reasonable conditions. Finally, we give some numerical tests in an Asian option pricing problem and an optimal hydropower management problem.

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Pages: 1-24

Publication Date: January 27, 2013

DOI: 10.1214/EJP.v18-1967

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