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We develop parallel algorithms for pricing a class of multidimensional financial derivatives employing a binomial lattice approach. We describe the algorithms, explain their complexities, and study their performance. The limitations posed by the problem size on the recursive algorithm and the solution to overcome this problem by an iterative algorithm are explained through experimental results using MPI. We first present analytical results for the number of computations and communications for both the algorithms. Since the number of nodes in a recombining lattice grows linearly with the problem size, it is feasible to price long-dated options using a recombining lattice. We have extended our algorithm to handle derivatives with many underlying assets and shown that the multi-asset derivatives offer a better problem for parallel computation. This is very important for the finance industry since long-dated derivatives with many underlying assets are common in practice.
Date of Conference: 2002