Abstract
Option management is among the most important and interesting problems in computational finance where modern techniques can be used to improve the design and implementation of software systems and supporting tools. The purpose of option valuation is to compute the value of a financial instrument, the option, which is governed by economic laws and is a function of a number of financial variables. The option valuation problem has many similarities to classical problems in physics and applied mathematics such as boundary value problems, free boundary problems, and optimal stopping problems. Knowhow from these areas has been proven useful in the mathematical treatment of options. The treatment of options in a mathematical framework facilitates their classification and provides the basis for an object-oriented abstraction. The object-orientation of the option valuation problem is used in FINANZIA, a library for option valuation, hedging, and implied parameter calculation. Introducing object-oriented techniques in the design and implementation of option management software helps in mastering the complexity and dynamic nature of the application domain, as well as in meeting the strict requirements for software maintainability, robustness, and performance.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
P. Boyle, M. Broadie, and P. Glasserman. Monte Carlo methods for security pricing. Technical report, Columbia University, 1995.
P. Boyle, J. Evnine, and S. Gibbs. Numerical evaluation of multivariate contingent claims. Review of Financial Studies, 2:241–250, 1989.
M. Brennan and E. Schwartz. Finite difference methods and jump processes arising in the pricing of contigent claims: A synthesis. Journal of Financial and Quantitative Analysis,13:461–474, Sep 1978.
F. Black and M. Scholes. The pricing of options and corporate liabilities. Journal of Political Economy, 81:637–659, 1973.
J. Cox and S. Ross. The valuation of options for alternative stochastic processes. Journal of Financial Economics, 3:145–166, Mar 1976.
J. Cox, S. Ross, and M. Rubinstein. Option pricing: A simplified approach. Journal of Financial Economics, 7:229–264, Oct 1979.
J. Crank. Free and Moving Boundary Problems Oxford University Press, 1984.
C. M. Elliot and J. R. Ockedon. Weak and Variational Methods for Moving Boundary Problems Pitman Publishing, Inc., 1982.
S. D. Howison, F. P. Kelly, and P. Wilmott. Mathematical Models in Finance Chapman & Hall, London, 1995.
J. Hull. Futures, Options and Other Derivatives Prentice Hall, third edition, 1996.
P. Jaillet, D. Lemberton, and B. Lapeyre. Variational inequalities and the pricing of american options. Acta Applicandae Mathematicae, 21:263–289, 1990.
K. N. Pantazopoulos, E. N. Houstis, and S. Zhang. Front-tracking finite difference methods for the american option valuation problem. Technical Report CSD TR-96–033, Computer Science Dept., Purdue University, May 1996.
P. Wilmott, J. Dewynne, and S. Howison. Option Pricing: Mathematical Models and Computation Oxford Financial Press, 1993.
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 1997 Springer Science+Business Media New York
About this chapter
Cite this chapter
Pantazopoulos, K.N., Houstis, E.N. (1997). Modern Software Techniques in Computational Finance. In: Arge, E., Bruaset, A.M., Langtangen, H.P. (eds) Modern Software Tools for Scientific Computing. Birkhäuser, Boston, MA. https://doi.org/10.1007/978-1-4612-1986-6_10
Download citation
DOI: https://doi.org/10.1007/978-1-4612-1986-6_10
Publisher Name: Birkhäuser, Boston, MA
Print ISBN: 978-1-4612-7368-4
Online ISBN: 978-1-4612-1986-6
eBook Packages: Springer Book Archive