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Meshless methods for option pricing in financial mathematics

Ph. D. Thesis
J. A. Rad
Meshless methods for option pricing in financial mathematics, Ph. D. Thesis (2015), Shahid Beheshti University, Tehran, Iran

Supervisor: Professor Kourosh Parand, Department of Computer Sciences, Faculty of Mathematical Sciences, Shahid Beheshti University, G.C. Tehran, Iran

Advisor: Professor Sohrabali Yousefi, Department of Mathematics, Faculty of Mathematical Sciences, Shahid Beheshti University, G.C. Tehran, Iran

Reviewers: 1. Professor Mehdi Dehghan, Department of Applied Mathematics, Faculty of Mathematics and Computer Science, Amirkabir University of Technology, No. 424, Hafez Avenue, Tehran 15914, Iran

2. Professor Saeid Abbasbandy, Department of Mathematics, Imam Khomeini International University, Ghazvin, Iran

 

An Introduction to radial basis functions and their applications

MS Thesis
J. A. Rad
An Introduction to radial basis functions and their applications, MS Thesis (2011), Shahid Beheshti University, Tehran, Iran

Supervisor: Professor Kourosh Parand, Department of Computer Sciences, Faculty of Mathematical Sciences, Shahid Beheshti University, G.C. Tehran, Iran

Analysis of the mathematical model for the probability density function in the vanilla and Binary options

Research Project
J. A. Rad
Analysis of the mathematical model for the probability density function in the vanilla and Binary options, Division of Scientific Computing (2015), Department of Information Technology, Uppsala University, Uppsala, Sweden

Joint with Dr. Lina von Sydow, Dr. Elisabeth Larsson and Dr. Lars Josef Hook, Division of Scientific Computing, Department of Information Technology, Uppsala University, Uppsala, Sweden

Solving differential equations in semi-infinite by using spectral methods based on Sinc functions and scaled Hermite polynomials

Research Project
K. Parand, J.A. Rad
Solving differential equations in semi-infinite by using spectral methods based on Sinc functions and scaled Hermite polynomials (2012), Shahid Beheshti University, Tehran, Iran

Spectral methods for solving differential equations in semi-infinite intervals with Laguerre and Scaled Laguerre functions and rational Chebyshev and Legendre functions

Research Project
K. Parand, J.A. Rad
Spectral methods for solving differential equations in semi-infinite intervals with Laguerre and Scaled Laguerre functions and rational Chebyshev and Legendre functions (2012), Shahid Beheshti University, Tehran, Iran

Numerical solution of Maxwell equations by using meshless methods

Research Project
J.A. Rad
Numerical solution of Maxwell equations by using meshless methods (2014), Imam Hossein University, Tehran, Iran

Joint with Dr. Mohsen Shahrezaee, Department of Mathematics, Imam Hossein University, Tehran, Iran

The introduction of an accurate computational model to recognition autistic children: An approach based on image processing and numerical linear algebra

Research Project
J.A. Rad
The introduction of an accurate computational model to recognition autistic children: An approach based on image processing and numerical linear algebra (2016), Institute for Cognitive and Brain Sciences, Shahid Beheshti University, Tehran, Iran

joint with Professor HamidReza Pouretemad, Professor Kourosh Parand, Dr. Vahid Nejati, Dr. Negar Sammaknejad, Dr. Fatemeh Bakouie

An operation matrix method based on Bernstein polynomials for Riccati differential equation and Volterra population model

Journal paper
K. Parand, Sayyed A. Hossayni, J.A. Rad
Applied Mathematical Modelling 40 (2016) 993-1011

Abstract

In this study, we present a modified configuration, including an exact formulation, for the operational matrix form of the integration, differentiation, and product operators applied in the Galerkin method. Previously, many studies have investigated the methods for obtaining operational matrices (derivative, integral, and product) for Fourier, Chebyshev, Legendre, and Jacobi polynomials, and some have considered the non-orthogonal bases that almost all of them operate on approximately. However, in this study, we aim to obtain the exact operational matrices (EOMs), which can be used for many classes of orthogonal and non-orthogonal polynomials. Similar to previous approaches, this method transforms the original problem into a system of nonlinear algebraic equations. To retain the simplicity of the procedure, the samples are considered in one-dimensional contexts, although the proposed technique can also be employed for two- and three-dimensional problems. Two examples are presented to verify the accuracy of the proposed new approach and to demonstrate the superior performance of EOMs compared with ordinary operational matrices. The corresponding results demonstrate the increased accuracy of the new method. In addition, the convergence of the EOM method is studied numerically and analytically to prove the efficiency of the method.

Local weak form meshless techniques based on the radial point interpolation (RPI) method and local boundary integral equation (LBIE) method to evaluate European and American options

Journal paper
J.A. Rad, K. Parand, S. Abbasbandy
Communications in Nonlinear Science and Numerical Simulation 22 (2015) 1178-1200

Abstract

For the first time in mathematical finance field, we propose the local weak form meshless methods for option pricing; especially in this paper we select and analysis two schemes of them named local boundary integral equation method (LBIE) based on moving least squares approximation (MLS) and local radial point interpolation (LRPI) based on Wu’s compactly supported radial basis functions (WCS-RBFs). LBIE and LRPI schemes are the truly meshless methods, because, a traditional non-overlapping, continuous mesh is not required, either for the construction of the shape functions, or for the integration of the local sub-domains. In this work, the American option which is a free boundary problem, is reduced to a problem with fixed boundary using a Richardson extrapolation technique. Then the θ-weighted scheme is employed for the time derivative. Stability analysis of the methods is analyzed and performed by the matrix method. In fact, based on an analysis carried out in the present paper, the methods are unconditionally stable for implicit Euler (θ=0) and Crank–Nicolson (θ=0.5) schemes. It should be noted that LBIE and LRPI schemes lead to banded and sparse system matrices. Therefore, we use a powerful iterative algorithm named the Bi-conjugate gradient stabilized method (BCGSTAB) to get rid of this system. Numerical experiments are presented showing that the LBIE and LRPI approaches are extremely accurate and fast.

Pricing European and American options by radial basis point interpolation

Journal paper
J. A. Rad, K. Parand, L. V. Ballestra
Applied Mathematics and Computation 251 (2015) 363-377

Abstract

We propose the use of the meshfree radial basis point interpolation (RBPI) to solve the Black–Scholes model for European and American options. The RBPI meshfree method offers several advantages over the more conventional radial basis function approximation, nevertheless it has never been applied to option pricing, at least to the very best of our knowledge. In this paper the RBPI is combined with several numerical techniques, namely: an exponential change of variables, which allows us to approximate the option prices on their whole spatial domain, a mesh refinement algorithm, which turns out to be very suitable for dealing with the non-smooth options’ payoff, and an implicit Euler Richardson extrapolated scheme, which provides a satisfactory level of time accuracy. Finally, in order to solve the free boundary problem that arises in the case of American options three different approaches are used and compared: the projected successive overrelaxation method (PSOR), the Bermudan approximation, and the penalty approach. Numerical experiments are presented which demonstrate the computational efficiency of the RBPI and the effectiveness of the various techniques employed.

Optimal control of a parabolic distributed parameter system via radial basis functions

Journal paper
J. A. Rad, S. Kazem, K. Parand
Communications in Nonlinear Science and Numerical Simulation 19 (2014) 2559-2567

Abstract

This paper attempts to present a meshless method to find the optimal control of a parabolic distributed parameter system with a quadratic cost functional. The method is based on radial basis functions to approximate the solution of the optimal control problem using collocation method. In this regard, different applications of RBFs are used. To this end, the numerical solutions are obtained without any mesh generation into the domain of the problems. The proposed technique is easy to implement, efficient and yields accurate results. Numerical examples are included and a comparison is made with an existing result.

A new numerical algorithm based on the first kind of modified Bessel function to solve population growth in a closed system

Journal paper
K. Parand, J. A. Rad, M. Nikarya
International Journal of Computer Mathematics 91 (2014) 1239-1254

Abstract

Volterra’s model for population growth in a closed system includes an integral term to indicate accumulated toxicity in addition to the usual terms of the logistic equation. In this research, a new numerical algorithm is introduced for solving this model. The proposed numerical approach is based on the modified Bessel function of the first kind and the collocation method. In this method, we aim to solve the problems on the semi-infinite domain without any domain truncation, variable transformation in basis functions and shifting the problem to a finite domain. Accordingly, we employ two different collocation approaches, one by computing through Volterra’s population model in the integro-differential form and the other by computing by converting this model to an ordinary differential form. These methods reduce the solution of a problem to the solution of a nonlinear system of algebraic equations. To illustrate the reliability of these methods, we compare the numerical results of the present methods with some well-known results in other to show that the new methods are efficient and applicable.

Application of meshfree methods for solving the inverse one-dimensional Stefan problem

Journal paper
K. Rashedi, H. Adibi, J. A. Rad, K. Parand
Engineering Analysis with Boundary Elements 40 (2014) 1-21

Abstract

This work is motivated by studies of numerical simulation for solving the inverse one and two-phase Stefan problem. The aim is devoted to employ two special interpolation techniques to obtain space-time approximate solution for temperature distribution on irregular domains, as well as for the reconstruction of the functions describing the temperature and the heat flux on the fixed boundary x=0 when the position of the moving interface is given as extra specification. The advantage of applying the methods is producing the shape functions which provide the important delta function property to ensure that the essential conditions are fulfilled. Due to ill-posedness of the problem, the process is intractable numerically, so special optimization technique is used to obtain the regularized solution. Numerical results for the typical benchmark test examples, which have the input measured data perturbed by increasing amounts of noise and continuity to the input data in the presence of additive noise, are obtained, which present the efficiency of the proposed method.

Numerical solution of fractional differential equations with a Tau method based on Legendre and Bernstein polynomials

Journal paper
J. A. Rad, S. Kazem, M. Shaban, K. Parand, A. Yildirim
Mathematical Methods in the Applied Sciences 37 (2014) 329-342

Abstract

In this paper, we state and prove a new formula expressing explicitly the integratives of Bernstein polynomials (or B-polynomials) of any degree and for any fractional-order in terms of B-polynomials themselves. We derive the transformation matrices that map the Bernstein and Legendre forms of a degree-n polynomial on [0,1] into each other. By using their transformation matrices, we derive the operational matrices of integration and product of the Bernstein polynomials. These matrices together with the Tau method are then utilized to reduce the solution of this problem to the solution of a system of algebraic equations. The method is applied to solve linear and nonlinear fractional differential equations.

Analytical solution of the transpiration on the boundary layer flow and heat transfer over a vertical slender cylinder

Journal paper
S. Abbasbandy, D. Modarrespoor, K. Parand, J. A. Rad
Quaestiones Mathematicae 36 (2013) 353-380

Abstract

An analysis is carried out to study the effects that blowing/injection and suction on the steady mixed convection or combined forced and free convection boundary layer flows over a vertical slender cylinder with a mainstream velocity and a wall surface temperature proportional to the axial distance along the surface of the cylinder. Both cases of buoyancy forces aid and oppose the development of the boundary layer are considered. For the investigated problem, the governing non-linear partial differential equations and their associated boundary conditions are transformed into coupled non-linear ordinary differential equations by using similarity transformations. This equation is solved both by a newly developed analytic technique, namely homotopy analysis method (HAM) and by a numerical method employing the shooting method. The convergence of the obtained series solutions is carefully checked. The physical significance of interesting parameters on the velocity profile and the temperature profile are shown through graphs and discussed in detail. The values of the skin friction coefficient, the local Nusselt number, curvature parameter, buoyancy or mixed convection parameter and Prandtl number are tabulated. Comparison is also made with the corresponding results of viscous fluid with no mixed convection and an excellent agreement is noted.

Solving non-linear Lane–Emden type equations using Bessel orthogonal functions collocation method

Journal paper
K. Parand, M. Nikarya, J. A. Rad
Celestial Mechanics and Dynamical Astronomy 116 (2013) 97-107

Abstract

The Lane–Emden type equations are employed in the modeling of several phenomena in the areas of mathematical physics and astrophysics. These equations are categorized as non-linear singular ordinary differential equations on the semi-infinite domain [0,)[0,∞). In this research we introduce the Bessel orthogonal functions as new basis for spectral methods and also, present an efficient numerical algorithm based on them and collocation method for solving these well-known equations. We compare the obtained results with other results to verify the accuracy and efficiency of the presented scheme. To obtain the orthogonal Bessel functions we need their roots. We use the algorithm presented by Glaser et al. (SIAM J Sci Comput 29:1420–1438, 2007) to obtain the NNroots of Bessel functions.

Radial basis functions approach on optimal control problems: a numerical investigation

Journal paper
J. A. Rad, S. Kazem, K. Parand
Journal of Vibration and Control 20 (2014) 1394-1416

Abstract

A numerical method for solving optimal control problems is presented in this work. The method is based on radial basis functions (RBFs) to approximate the solution of the optimal control problems by using collocation method. We applied Legendre–Gauss–Lobatto points for RBFs center nodes to use numerical integration method more easily, then the method of Lagrange multipliers is used to obtain the optimum of the problems. For this purpose different applications of RBFs are used. The differential and integral expressions which arise in the system dynamics, the performance index and the boundary conditions are converted into some algebraic equations which can be solved for the unknown coefficients. Illustrative examples are included to demonstrate the validity and applicability of the technique.

A modification of the homotopy analysis method based on Chebyshev operational matrices

Journal paper
M. Shaban, S. Kazem, J. A. Rad
Mathematical and Computer Modelling 57 (2013) 1227-1239

Abstract

In this paper a novel approach based on the homotopy analysis method (HAM) is presented for solving nonlinear boundary value problems. This method is based on the operational matrix of Chebyshev polynomials to construct the derivative and product of the unknown function in matrix form. In addition, by using the Tau method the problem is converted to a set of algebraic equations from which the solution can be obtained iteratively. The applicability, accuracy and efficiency of this new Tau modification of the HAM is demonstrated via two examples.

Kansa method for the solution of a parabolic equation with an unknown spacewise-dependent coefficient subject to an extra measurement

Journal paper
K. Parand, J. A. Rad
Computer Physics Communications 184 (2013) 582-595

Abstract

Parabolic partial differential equations with an unknown spacewise-dependent coefficient serve as models in many branches of physics and engineering. Recently, much attention has been expended in studying these equations and there has been a considerable mathematical interest in them. In this work, the solution of the one-dimensional parabolic equation is presented by the method proposed by Kansa. The present numerical procedure is based on the product model of the space–time radial basis function (RBF), which was introduced by Myers et al. Using this method, a rapid convergent solution is produced which tends to the exact solution of the problem. The convergence of this scheme is accelerated when we use the Cartesian nodes as center nodes. The accuracy of the method is tested in terms of Error and RMS errors. Also, the stability of the technique is investigated by perturbing the additional specification data by increasing the amounts of random noise. The numerical results obtained show that the proposed method produces a convergent and stable solution.

A new Reliable Numerical Algorithm Based on the First Kind of Bessel Functions to Solve Prandtl–Blasius Laminar Viscous Flow over a Semi-Infinite Flat Plate

Journal paper
K. Parand, M. Nikarya, J. A. Rad, F. Baharifard
Zeitschrift für Naturforschung A. 67 (2014) 665-673

Abstract

In this paper, a new numerical algorithm is introduced to solve the Blasius equation, which is a third-order nonlinear ordinary differential equation arising in the problem of two-dimensional steady state laminar viscous flow over a semi-infinite flat plate. The proposed approach is based on the first kind of Bessel functions collocation method. The first kind of Bessel function is an infinite series, defined on ℝ and is convergent for any x ∊ℝ. In this work, we solve the problem on semi-infinite domain without any domain truncation, variable transformation basis functions or transformation of the domain of the problem to a finite domain. This method reduces the solution of a nonlinear problem to the solution of a system of nonlinear algebraic equations. To illustrate the reliability of this method, we compare the numerical results of the present method with some well-known results in order to show the applicability and efficiency of our method.

The numerical study on the unsteady flow of gas in a semi-infinite porous medium using an RBF collocation method

Journal paper
S. Kazem, J. A. Rad, K. Parand, M. Shaban, H. Saberi
International Journal of Computer Mathematics 89 (2012) 2240-2258

Abstract

In this paper, we study a nonlinear two-point boundary value problem on semi-infinite interval that describes the unsteady gas equation. The solution of the mentioned ordinary differential equation (ODE) is investigated by means of the radial basis function (RBF) collocation method. The RBF reduces the solution of the above-mentioned problem to the solution of a system of algebraic equations and finds its numerical solution. To examine the accuracy and stability of the approach, we transform the mentioned problem into another nonlinear ODE which simplifies the original problem. The comparisons are made between the results of the present work and the numerical method by shooting method combined with the Runge–Kutta technique. It is found that our results agree well with those by the numerical method, which verifies the validity of the present work.

A numerical solution of the nonlinear controlled Duffing oscillator by radial basis functions

Journal paper
J. A. Rad, S. Kazem, K. Parand
Computers & Mathematics with Applications 64 (2012) 2049-2065

Abstract

In this research, a new numerical method is applied to investigate the nonlinear controlled Duffing oscillator. This method is based on the radial basis functions (RBFs) to approximate the solution of the optimal control problem by using the collocation method. We apply Legendre–Gauss–Lobatto points for RBFs center nodes in order to use the numerical integration method more easily; then the method of Lagrange multipliers is used to obtain the optimum of the problems. For this purpose different applications of RBFs are used. The differential and integral expressions which arise in the dynamic systems, the performance index and the boundary conditions are converted into some algebraic equations which can be solved for the unknown coefficients. Illustrative examples are included to demonstrate the validity and applicability of the technique.

A meshless method on non-Fickian flows with mixing length growth in porous media based on radial basis functions: A comparative study

Journal paper
S. Kazem, J. A. Rad, K. Parand
Computers & Mathematics with Applications 64 (2012) 399-412

Abstract

The present study aims to introduce a solution for parabolic integro-differential equations arising in heat conduction in materials with memory, which naturally occur in many applications. Two Radial basis functions (RBFs) collocation schemes are employed for solving this equation. The first method tested is an unsymmetric method, and the second one, which appears to be more efficient, is a symmetric one. The convergence of these two schemes is accelerated, as we use the cartesian nodes as the center nodes.

Radial basis functions method for solving of a non-local boundary value problem with Neumann’s boundary conditions

Journal paper
S. Kazem, J. A. Rad
Applied Mathematical Modelling 36 (2012) 2360-2369

Abstract

In this paper, the problem of solving the two-dimensional diffusion equation subject to a non-local condition involving a double integral in a rectangular region is considered. The solution of this type of problems are complicated. Therefore, a simple meshless method using the radial basis functions is constructed for the non-local boundary value problem with Neumann’s boundary conditions. Numerical examples are included to demonstrate the reliability and efficiency of this method. Also Ne and root mean square errors are obtained to show the convergence of the method.

Solution of the Coupled Burgers Equation Based on Operational Matrices of d-Dimensional Orthogonal Functions

Journal paper
S. Kazem, M. Shaban, J. A. Rad
Zeitschrift für Naturforschung A. 67 (2012) 267-274

Abstract

This paper aims to construct a general formulation for the d-dimensional orthogonal functions and their derivative and product matrices. These matrices together with the Tau method are utilized to reduce the solution of partial differential equations (PDEs) to the solution of a system of algebraic equations. The proposed method is applied to solve homogeneous and inhomogeneous two-dimensional parabolic equations. Also, the mentioned method is employed to find the solution of the coupled Burgers equation. Illustrative examples are included to demonstrate the validity and applicability of the presented technique.

Radial basis functions methods for solving Fokker–Planck equation

Journal paper
S. Kazem, J. A. Rad, K. Parand
Engineering Analysis with Boundary Elements 36 (2012) 181-189

Abstract

In this paper two numerical meshless methods for solving the Fokker–Planck equation are considered. Two methods based on radial basis functions to approximate the solution of Fokker–Planck equation by using collocation method are applied. The first is based on the Kansa’s approach and the other one is based on the Hermite interpolation. In addition, to conquer the ill-conditioning of the problem for big number of collocation nodes, two time domain Discretizing schemes are applied. Numerical examples are included to demonstrate the reliability and efficiency of these methods. Also root mean square and Ne errors are obtained to show the convergence of the methods. The errors show that the proposed Hermite collocation approach results obtained by the new time-Discretizing scheme are more accurate than the Kansa’s approach.

Exp-function method for some nonlinear PDE’s and a nonlinear ODE’s

Journal paper
K. Parand, J. A. Rad
Journal of King Saud University - Science 24 (2012) 1-10

Abstract

In this paper, we apply the Exp-function method to find some exact solutions for two nonlinear partial differential equations (NPDE) and a nonlinear ordinary differential equation (NODE), namely, Cahn-Hilliard equation, Allen-Cahn equation and Steady-State equation, respectively. It has been shown that the Exp-function method, with the help of symbolic computation, provides a very effective and powerful mathematical tool for solving NPDE’s and NODE’s. Mainly we try to present an application of Exp-function method taking to consideration rectifying a commonly occurring errors during some of recent works. The results of the other methods clearly indicate the reliability and efficiency of the used method.

Numerical solution of nonlinear Volterra–Fredholm–Hammerstein integral equations via collocation method based on radial basis functions

Journal paper
K. Parand, J. A. Rad
Applied Mathematics and Computation 218 (2012) 5292-5309

Abstract

A numerical technique based on the spectral method is presented for the solution of nonlinear Volterra–Fredholm–Hammerstein integral equations. This method is a combination of collocation method and radial basis functions (RBFs) with the differentiation process (DRBF), using zeros of the shifted Legendre polynomial as the collocation points. Different applications of RBFs are used for this purpose. The integral involved in the formulation of the problems are approximated based on Legendre–Gauss–Lobatto integration rule. The results of numerical experiments are compared with the analytical solution in illustrative examples to confirm the accuracy and efficiency of the presented scheme.

A novel application of radial basis functions for solving a model of first-order integro-ordinary differential equation

Journal paper
K. Parand, S. Abbasbandy, S. Kazem, J.A. Rad
Communications in Nonlinear Science and Numerical Simulation 16 (2011) 4250-4258

Abstract

In this paper two common collocation approaches based on radial basis functions (RBFs) have been considered; one is computed through the differentiation process (DRBF) and the other one is computed through the integration process (IRBF). We investigate these two approaches on the Volterra’s Population Model which is an integro-differential equation without converting it to an ordinary differential equation. To solve the problem, we use four well-known radial basis functions: Multiquadrics (MQ), Inverse multiquadrics (IMQ), Gaussian (GA) and Hyperbolic secant (sech) which is a newborn RBF. Numerical results and residual norm (‖R(t)‖2) show good accuracy and rate of convergence of two common approaches.

A New Method for Solving Steady Flow of a Third-Grade Fluid in a Porous Half Space Based on Radial Basis Functions

Journal paper
S. Kazem, J. A. Rad, K. Parand, S. Abbasbandy
Zeitschrift für Naturforschung A. 66 (2011) 591-598

Abstract

In this study, flow of a third-grade non-Newtonian fluid in a porous half space has been considered. This problem is a nonlinear two-point boundary value problem (BVP) on semi-infinite interval. We find the simple solutions by using collocation points over the almost whole domain [0;∞). Our method based on radial basis functions (RBFs) which are positive definite functions. We applied this method through the integration process on the infinity boundary value and simply satisfy this condition by Gaussian, inverse quadric, and secant hyperbolic RBFs.We compare the results with solution of other methods.

Numerical and Analytical Solution of Gas Flow Through a Micro-Nano Porous Media: A Comparison

Journal paper
J. A. Rad, S. M. Ghaderi, K. Parand
Journal of Computational and Theoretical Nanoscience 8 (2011) 2033-2041

Abstract

In this paper, we study a non-linear two-point boundary value problem (BVP) on semi-infinite interval that describes the unsteady gas equation. The solution of the mentioned ordinary differential equation (ODE) is investigated by means of the Hermite functions collocation method and the Homotopy analysis method (HAM). The Hermite functions collocation method reduces the solution of above-mentioned problem to the solution of a system of algebraic equations and finds its the numerical solution. The homotopy analysis method is also one of the most effective methods in obtaining series solutions for these types of problems and finds their analytic solution. Through the convergence of these methods we determine the accurate initial slope y′(0) with good capturing the essential behavior of y(x). Numerical and analytical evaluations and comparisons with the results obtained are also discussed at the last part of the paper.

Adomian Decomposition Method

Persian BOOK
K. Parand, J. A. Rad
Adomian Decomposition Method, Iranian Students Booking Agency, 2014