@Article{JMS-47-1,
author = {Song, Haiming and Zhang, Ran and Wenyi, Tian},
title = {Spectral Method for the Black-Scholes Model of American Options Valuation},
journal = {Journal of Mathematical Study},
year = {2014},
volume = {47},
number = {1},
pages = {47--64},
abstract = {<p style="text-align: justify;">In this paper, we devote ourselves to the research of numerical methods
for American option pricing problems under the Black-Scholes model. The optimal
exercise boundary which satisfies a nonlinear Volterra integral equation is resolved by
a high-order collocation method based on graded meshes. For the other spatial domain
boundary, an artificial boundary condition is applied to the pricing problem for the
effective truncation of the semi-infinite domain. Then, the front-fixing and stretching
transformations are employed to change the truncated problem in an irregular domain
into a one-dimensional parabolic problem in [−1,1]. The Chebyshev spectral method
coupled with fourth-order Runge-Kutta method is proposed for the resulting parabolic
problem related to the options. The stability of the semi-discrete numerical method is
established for the parabolic problem transformed from the original model. Numerical
experiments are conducted to verify the performance of the proposed methods and
compare them with some existing methods.</p>},
issn = {2617-8702},
doi = {https://doi.org/10.4208/jms.v47n1.14.03},
url = {https://global-sci.com/article/87842/spectral-method-for-the-black-scholes-model-of-american-options-valuation}
}