Name
Title | ||
|---|---|---|
An interior penalty method for a finite-dimensional linear complementarity problem in financial engineering. |
Abstract | ||
|---|---|---|
In this work we study an interior penalty method for a finite-dimensional large-scale linear complementarity problem (LCP) arising often from the discretization of stochastic optimal problems in financial engineering. In this approach, we approximate the LCP by a nonlinear algebraic equation containing a penalty term linked to the logarithmic barrier function for constrained optimization problems. We show that the penalty equation has a solution and establish a convergence theory for the approximate solutions. A smooth Newton method is proposed for solving the penalty equation and properties of the Jacobian matrix in the Newton method have been investigated. Numerical experimental results using three non-trivial test examples are presented to demonstrate the rates of convergence, efficiency and usefulness of the method for solving practical problems. |
Year | DOI | Venue |
|---|---|---|
2018 | 10.1007/s11590-016-1050-4 | Optimization Letters |
Keywords | Field | DocType |
Variational inequality, Stochastic optimal control, American option pricing, HJB equation, Linear complementarity problem, Interior penalty method | Discretization,Mathematical optimization,Jacobian matrix and determinant,Mathematical analysis,Algebraic equation,Linear complementarity problem,Mixed complementarity problem,Mathematics,Penalty method,Variational inequality,Newton's method | Journal |
Volume | Issue | ISSN |
12 | 6 | 1862-4480 |
Citations | PageRank | References |
0 | 0.34 | 11 |
Authors | ||
2 | ||