Year: 2017
Author: Kai Zhang, Xiao-Qi Yang
International Journal of Numerical Analysis and Modeling, Vol. 14 (2017), Iss. 3 : pp. 405–418
Abstract
We present a novel numerical scheme to price European options on discount bond, where the single factor models are adopted for the short interest rate. This method is based on a fitted finite volume (FFVM) scheme for the spatial discretization and an implicit scheme for the time discretization. We show that this scheme is consistent, stable and monotone, hence it ensures the convergence to the solution of continuous problem. Numerical experiments are performed to verify the effectiveness and usefulness of this new method.
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Journal Article Details
Publisher Name: Global Science Press
Language: English
DOI: https://doi.org/2017-IJNAM-10014
International Journal of Numerical Analysis and Modeling, Vol. 14 (2017), Iss. 3 : pp. 405–418
Published online: 2017-01
AMS Subject Headings: Global Science Press
Copyright: COPYRIGHT: © Global Science Press
Pages: 14
Keywords: Option pricing finite volume method partial differential equation.