Mathematical models for option pricing often result in partial differential equations. Recent enhancements are models driven by Lévy processes, which lead to a partial differential equation with an additional integral term. In the context of model calibration, these partial integro differential equations need to be solved quite frequently. To reduce the computational cost the implementation of a reduced order model has shown to be very successful numerically. In this paper we give a priori error estimates for the use of the proper orthogonal decomposition technique in the context of option pricing models.

Keywords: option pricing models, proper orthogonal decomposition, a priori error estimate

@article{M2AN_2013__47_2_449_0, author = {Sachs, Ekkehard W. and Schu, Matthias}, title = {\protect\emph{A priori }error estimates for reduced order models in finance}, journal = {ESAIM: Mathematical Modelling and Numerical Analysis }, pages = {449--469}, publisher = {EDP-Sciences}, volume = {47}, number = {2}, year = {2013}, doi = {10.1051/m2an/2012039}, zbl = {1268.91182}, language = {en}, url = {http://www.numdam.org/articles/10.1051/m2an/2012039/} }

TY - JOUR AU - Sachs, Ekkehard W. AU - Schu, Matthias TI - A priori error estimates for reduced order models in finance JO - ESAIM: Mathematical Modelling and Numerical Analysis PY - 2013 SP - 449 EP - 469 VL - 47 IS - 2 PB - EDP-Sciences UR - http://www.numdam.org/articles/10.1051/m2an/2012039/ DO - 10.1051/m2an/2012039 LA - en ID - M2AN_2013__47_2_449_0 ER -

%0 Journal Article %A Sachs, Ekkehard W. %A Schu, Matthias %T A priori error estimates for reduced order models in finance %J ESAIM: Mathematical Modelling and Numerical Analysis %D 2013 %P 449-469 %V 47 %N 2 %I EDP-Sciences %U http://www.numdam.org/articles/10.1051/m2an/2012039/ %R 10.1051/m2an/2012039 %G en %F M2AN_2013__47_2_449_0

Sachs, Ekkehard W.; Schu, Matthias.A priorierror estimates for reduced order models in finance. ESAIM: Mathematical Modelling and Numerical Analysis , Volume 47 (2013) no. 2, pp. 449-469. doi : 10.1051/m2an/2012039. http://www.numdam.org/articles/10.1051/m2an/2012039/

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