The Alternating Direction Explicit (ADE) Finite Difference Method. Fast, Unconditionally Stable, High-Order Explicit Schemes for Derivatives Pricing and Hedging - (code ADE)
In this one-day to-the-point workshop we introduce the ADE method for pricing and hedging one-factor and two-factor partial differential equations in finance. We show how to apply this method to option pricing and its advantages when compared to other finite difference methods.
Subjects Covered
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Background and mathematical basis
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ADE for computational finance
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Why ADE is a real competitor to ADI and Splitting methods
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Stability, accuracy and performance advantages of ADE
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ADE for one-factor and two-factor models
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ADE for local and stochastic volatility
Benefits
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Overview A-Z of ADE in one day
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The steps to know when applying ADE
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Why ADE improves other FD schemes
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ADE for equity and fixed income
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Ease of extendibility
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ADE improving ADI and Soviet Splitting
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Begin ADE right away after the workshop!
About the speakers
Guillaume Pealat graduated from Ecole Centrale de Lyon in 2000. He has since helped starting the Asian business of a leading financial software company. He now manages the quant it/structuring team in Tradition Financial Services Structured Products. (website: www.tfssp.com)
Dr. Daniel J. Duffy has MSc and PhD degrees in Numerical Analysis from Trinity College, Dublin. He has applied numerical methods in engineering and computational finance, in particular the application of exponentially fitted methods, Splitting and Alternating Direction Explicit (ADE) methods to derivatives pricing problems.
He trains professionals in finance and MFE/MSc students at several universities.
Course Contents
Morning session 09.00 - 12.30
ADE for One-Factor Numerical Analysis
PDE Formulation
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Convection-diffusion: conservative and non-conservative forms
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Domain truncation versus domain transformation
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Fichera theory and boundary conditions
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Nonlinear PDE in finance
The ADE Method
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Background and motivation
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The notion of ‘sweep’
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Variations of the ADE method
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Examples and applicability
Analysis of the ADE Method
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Conditional and unconditional consistency
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The ADE variants and their properties
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Local truncation error
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Stability and convergence
Coffee/Tea break
European and American Options
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Choosing between Saul’yev, Larkin and Barakat-Clark variants
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Accuracy and oscillation-free schemes
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ADE for barrier options
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Early exercise: penalty and Brennan-Schwartz methods
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Implementing ADE in VBA, C++ and C#
Other One-Factor Models
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Kolmogorov Forward Equation
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Local Volatility – CEV example
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Uncertain Volatility model
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Short term rate models
Afternoon session 13.30 – 18.00
Multi factor models
Analysis of ADI and Splitting Methods
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Dimensional splitting and splitting error
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Dealing with mixed derivatives
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Unstable boundary conditions
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Computational costs with higher accuracy
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Oscillations and Crank Nicolson
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How ADE resolves these problems
ADE for multi-factor Options
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What are the choices?
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Discretising diffusion and convection terms
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Handling boundary conditions
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Achieving stability and second-order accuracy
Coffee/Tea break
Advantages of ADE and Applications
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Accuracy (second order)
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Efficiency (no LU decomposition)
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Ease of programming
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Extension to n-factor models
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Multi-asset and stochastic volatility models
Using ADE for 2-Factor Models in Finance
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The zero correlation case
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The non-zero correlation case: Yanenko splitting
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Boundary conditions
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Uncertain correlation case
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Stochastic Volatility model
Ongoing Developments and Q&A
Who should attend?
This intensive one-day workshop is for meant for those finance professionals who design fast numerical methods to price and hedge derivatives products. The ADE method is explicit, second order accurate and unconditionally stable. It is approximately 35% faster in execution speed than its nearest (optimized) FDM competitor.
Course FormWorkshop from 09.00 am - 6 pm.
Duration, price, date, locations and registration
| Course duration: |
1 day. |
| Course price: |
€ 945.-- ex. VAT.
€ 1143.45 inc. 21% VAT. |
| Dates and location: |
(click on dates to print registration form) |
| Date(s) |
Location |
Price |
Language |
No dates yet.
This course can be organised on-demand. Call Datasim (+31-72-2204802) or for more information about the possibilities.
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Attention
When you register before the 1st of June 2011, you will receive a 10% discount.
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