On the Convergence of a Crank-Nicolson Fitted Finite Volume Method for Pricing European Options Under Regime-Switching Kou’s Jump-Diffusion Models
Year: 2023
Author: Xiaoting Gan, Junfeng Yin, Rui Li
Advances in Applied Mathematics and Mechanics, Vol. 15 (2023), Iss. 5 : pp. 1290–1314
Abstract
In this paper, we construct and analyze a Crank-Nicolson fitted finite volume scheme for pricing European options under regime-switching Kou's jump-diffusion model which is governed by a system of partial integro-differential equations (PIDEs). We show that this scheme is consistent, stable and monotone as the mesh sizes in space and time approach zero, hence it ensures the convergence to the solution of continuous problem. Finally, numerical experiments are performed to demonstrate the efficiency, accuracy and robustness of the proposed method.
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Journal Article Details
Publisher Name: Global Science Press
Language: English
DOI: https://doi.org/10.4208/aamm.OA-2021-0016
Advances in Applied Mathematics and Mechanics, Vol. 15 (2023), Iss. 5 : pp. 1290–1314
Published online: 2023-01
AMS Subject Headings: Global Science Press
Copyright: COPYRIGHT: © Global Science Press
Pages: 25
Keywords: European option pricing regime-switching Kou’s jump-diffusion model partial integro-differential equation fitted finite volume method Crank-Nicolson scheme.