Approximations of stochastic partial differential equations and applications in forward markets

Andrea Barth (IANS Stuttgart)
Thursday, December 4, 2014 - 4:00pm
HU Berlin, Rudower Chaussee 25, 12489 Berlin, Room 1.115

In this talk I present a model for a yield curve in a forward market using a stochastic partial differential equation driven by an infinite-dimensional Lévy process. This method is well known in interest rate theory. To determine the price of an option one has to calculate the weak error of the solution to the stochastic partial differential equation. The hyperbolic nature of this equation and the non-continuous noise complicate the task of numerical approximation. Furthermore, I make use of a multilevel Monte Carlo method to approximate the said weak error.