Year: 2016
Author: Shuhua Zhang, Jing Wang
Advances in Applied Mathematics and Mechanics, Vol. 8 (2016), Iss. 5 : pp. 827–846
Abstract
In this paper, we study carbon emission trading whose market is gaining popularity as a policy instrument for global climate change. The mathematical model is presented for pricing options on $CO_2$ emission allowance futures with jump diffusion processes, and a so-called fitted finite volume method is proposed to solve the pricing model for the spatial discretization, in which the Crank-Nicolson is employed for time stepping. In addition, the stability and the convergence of the fully discrete scheme are given, and some numerical results, which are compared with the closed form solution and the Monte Carlo simulation solution, are provided to demonstrate the rates of convergence and the robustness of the numerical method.
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Journal Article Details
Publisher Name: Global Science Press
Language: English
DOI: https://doi.org/10.4208/aamm.2015.m1001
Advances in Applied Mathematics and Mechanics, Vol. 8 (2016), Iss. 5 : pp. 827–846
Published online: 2016-01
AMS Subject Headings: Global Science Press
Copyright: COPYRIGHT: © Global Science Press
Pages: 20
Keywords: $CO_2$ emission allowance option pricing jump diffusion fitted finite volume method partial integro-differential equation fast Fourier transform.
Author Details
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