Journals Information
Computational Research(CEASE PUBLICATION) Vol. 2(3), pp. 49 - 53
DOI: 10.13189/cr.2014.020303
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A Fitted Finite Volume Method for Unit-linked Policy with Surrender Option
Shuhua Chang 1, Zhiwei Fang 1, Xin Liu 2, Vladimir Shaydurov 3,*
1 Research Center for Mathematics and Economics, Tianjin University of Finance and Economics, Tianjin, 300222, China
2 Olin Business School, Washington University in St. Louis, St. Louis, MO 63130, USA
3 Institute of Computational Modeling of the Siberian, Branch of Russian Academy of Sciences, Krasnoyarsk, 660036, Russia
ABSTRACT
In this paper, fitted finite volume method is developed to solve a nonlinear degenerate Black-Scholes equation applied in the valuation of unit-linked policy with surrender option, based on the fitting idea in S. Wang [IMA J. Numer. Anal., 24 (2004), 699--720]. Unlike the conventional pricing method mentioned in [1] which is using the free boundary method to calibrate the valuation PDE, here we develop a power penalty method to solve numerically the linear complimentary problem in the variational inequality arising from the valuation of unit-linked policy with surrender option. With the degenerate boundary and non-smooth final condition, we will show that it is essential to refine the mesh to remain the convergence and super-convergence order.
KEYWORDS
Insurance, Unit-linked Policy, Power Penalty Method, Finite Volume Method
Cite This Paper in IEEE or APA Citation Styles
(a). IEEE Format:
[1] Shuhua Chang , Zhiwei Fang , Xin Liu , Vladimir Shaydurov , "A Fitted Finite Volume Method for Unit-linked Policy with Surrender Option," Computational Research(CEASE PUBLICATION), Vol. 2, No. 3, pp. 49 - 53, 2014. DOI: 10.13189/cr.2014.020303.
(b). APA Format:
Shuhua Chang , Zhiwei Fang , Xin Liu , Vladimir Shaydurov (2014). A Fitted Finite Volume Method for Unit-linked Policy with Surrender Option. Computational Research(CEASE PUBLICATION), 2(3), 49 - 53. DOI: 10.13189/cr.2014.020303.