Posted by
Kim Kuen Tang on
May 11, 2010; 8:32am
URL: http://quantlib.414.s1.nabble.com/Neumann-boundary-conditions-in-FDE-engine-tp8183p8184.html
Hi Eduardo,
Eduardo Alonso schrieb:
> Dear all,
>
> I hope someone can help me with the boundary conditions. I am
> exploring the FDE engine (simply vanilla at the moment -- Equity.cpp
> example) and I don't get around understanding the boundary conditions
> -- especially Neumann. In addition, this construct with the
> applyBeforeApplying, applyAfterApplying, applyBeforeSolving and such
> is convoluting it even more.
>
Look in this link, this might help you.
http://quantlib.org/quep/quep002.html> 1. Is the intention of the Neumann boundary conditions in QuantLib (in
> this example) to keep C(i, 0) - C(i+1, 0) = C(i, T) - C(i+1, T)? C is
> the call price, T is the terminal boundary (maturity) and 0 is when we
> evaluate the option. This is indeed some sort of Neumann boundary
> condition, since the dC/dS at the boundary is kept constant.
>
> 2. If I interpreted it correctly, what is the financial rationale
> behind that sort of boundary condition? Even if I undersand it
> intuitively, I've never seen it before. Maybe I misinterpreted it
> alltogether, in which case I would thank if someone points me in the
> right direction
>
> 3. Did you follow a particular book / notation for the implementation
> that I can use as a reference (if you have anything written even
> better -- even if it's unders construction). I looked at the book by
> Tavella and also Wilmott (on Quantitative Finance) and I didn't see
> anything similar.
> 4. If you know of any references I can use about boundary conditions
> for BS, that would be very helpful.
>
> Thanks a lot in advance and best regards to everyone
>
> Eduardo
>
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