A Discontinuous Galerkin Method for Pricing American Options Under the Constant Elasticity of Variance Model
Year: 2015
Communications in Computational Physics, Vol. 17 (2015), Iss. 3 : pp. 761–778
Abstract
The pricing of option contracts is one of the classical problems in Mathematical Finance. While useful exact solution formulas exist for simple contracts, typically numerical simulations are mandated due to the fact that standard features, such as early-exercise, preclude the existence of such solutions. In this paper we consider derivatives which generalize the classical Black-Scholes setting by not only admitting the early-exercise feature, but also considering assets which evolve by the Constant Elasticity of Variance (CEV) process (which includes the Geometric Brownian Motion of Black-Scholes as a special case). In this paper we investigate a Discontinuous Galerkin method for valuing European and American options on assets evolving under the CEV process which has a number of advantages over existing approaches including adaptability, accuracy, and ease of parallelization.
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Journal Article Details
Publisher Name: Global Science Press
Language: English
DOI: https://doi.org/10.4208/cicp.190513.131114a
Communications in Computational Physics, Vol. 17 (2015), Iss. 3 : pp. 761–778
Published online: 2015-01
AMS Subject Headings: Global Science Press
Copyright: COPYRIGHT: © Global Science Press
Pages: 18
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