SFB 303 Discussion Paper No. B - 429

Author: Look, Stefan
Title: The Stochastic Finite Element Method and Application in Option Pricing
Abstract: The purpose of this paper is to present a numerical method to solve partial stochastic differential equations. This concept remains the differential operator unchanged but discretizes the dimension of the problem. The response function will be decomposed by the Karhunen--Loeve expansion and approximated by deterministic base functions and Homogeneous Chaos. Application to option pricing will be made.
Keywords: Stochastic Differential Equations, Stochastic Finite Element Method, Homogeneous Chaos, Karhunen--Loeve expansion, Option Pricing, Numerical Method
JEL-Classification-Number: G13
Creation-Date: March 1998
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