A Preliminary Study on the Application of FEM in Financial Engineering Analysis

DOI

10.2991/emim-15.2015.127How to use a DOI?

Keywords

Financial Engineering; Numerical Analysis; Finite Element Method; Finite Difference Method; Stochastic Differential Equations

Abstract

Many practical problems in modern finance can be cast into the framework of stochastic differential equations, so that numerical techniques from engineering can be adapted. The static 1D problem in financial engineering characterized by non-self-adjoint is examined in this paper using the Finite Element Method (FEM). The finite element for the problem mentioned above is established based on Galerkin criterion. And numerical examples, such as first exit time of a geometric Brownian motion, and convection-dominated problems, are solved using FEM. The results are compared with analytic solution, FDM respectively. It is shown that high computational accuracy and efficiency are achieved using FEM and this method can be further used in dynamic problem, 2D problem of financial engineering.

Copyright

© 2015, the Authors. Published by Atlantis Press.

Open Access

This is an open access article distributed under the CC BY-NC license (http://creativecommons.org/licenses/by-nc/4.0/).

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TY  - CONF
AU  - Yanxi Yang
PY  - 2015/04
DA  - 2015/04
TI  - A Preliminary Study on the Application of FEM in Financial Engineering Analysis
BT  - Proceedings of the 2015 International Conference on Education, Management, Information and Medicine
PB  - Atlantis Press
SP  - 639
EP  - 643
SN  - 2352-5428
UR  - https://doi.org/10.2991/emim-15.2015.127
DO  - 10.2991/emim-15.2015.127
ID  - Yang2015/04
ER  -