The Rouwenhorst method of approximating stationary AR(1) processes has been overlooked by much of the literature despite having many desirable properties unmatched by other methods. In particular, we prove that it can match the conditional and unconditional mean and variance, and the first-order...

Chen and Shen [Chen, A.-S., and P.-F. Shen. 2003. Computational complexity analysis of least-squares Monte Carlo (LSM) for pricing US derivatives. Applied Economics Letters 10: 223-9] argue that we can improve the least squares Monte Carlo method (LSMC) to value American options by removing the...

The interrelation between the drift coefficient of price processes on arbitrage-free financial markets and the corresponding transition probabilities induced by a martingale measure is analysed in a discrete setup. As a result, we obtain a flexible setting that encompasses most arbitrage-free...

In this paper, we suggest several improvements to the numerical implementation of the quantization method for stochastic control problems in order to obtain fast and accurate premium estimations. This technique is applied to derivative pricing in energy markets. Several ways of modeling energy...

We study the sovereign default model that has been used to account for the cyclical behavior of interest rates in emerging market economies. This model is often solved using the discrete state space technique with evenly spaced grid points. We show that this method necessitates a large number of...

We solve Burgers’ equation with random Riemann initial conditions. The closed solution allows simple expressions for its statistical moments. Using these ideas we design an efficient algorithm to calculate the statistical moments of the solution. Our methodology is an alternative to the Monte...