A method is given to find a recurrence relation for the coefficients of the series expansion of a function f with respect to classical orthogonal polynomials of a discrete variable, which follows from a linear difference equation satisfied by f.
We show that polynomials defined by recurrence relations with periodic coefficients may be represented with the help of Chebyshev polynomials of the second kind.
Let be any sequence of classical orthogonal polynomials. Further, let f be a function satisfying a linear differential equation with polynomial coefficients. We give an algorithm to construct, in a compact form, a recurrence relation satisfied by the coefficients in . A systematic use of the basic properties (including some nonstandard ones) of the polynomials results in obtaining a low order of the recurrence.
MSC 2010: 33C15, 33C05, 33C45, 65R10, 20C40The paper contains some new formulas involving the Whittaker functions and arising as the values of some double integrals, which are invariant with respect to the representation of the group SO(2; 1).
We study both analytic and numerical solutions of option pricing equations using systems of orthogonal polynomials. Using a Galerkin-based method, we solve the parabolic partial differential equation for the Black-Scholes model using Hermite polynomials and for the Heston model using Hermite and Laguerre polynomials. We compare the obtained solutions to existing semi-closed pricing formulas. Special attention is paid to the solution of the Heston model at the boundary with vanishing volatility.