scholarly journals A Positivity-Preserving Numerical Scheme for Nonlinear Option Pricing Models

2012 ◽  
Vol 2012 ◽  
pp. 1-20 ◽  
Author(s):  
Shengwu Zhou ◽  
Wei Li ◽  
Yu Wei ◽  
Cui Wen
Keyword(s):  
Finite Difference ◽  
Difference Scheme ◽  
Numerical Method ◽  
Numerical Scheme ◽  
Discrete Equation ◽  
Pricing Models ◽  
Positivity Preserving ◽  
Unconditionally Stable ◽  
Put Option ◽  
Black Scholes

A positivity-preserving numerical method for nonlinear Black-Scholes models is developed in this paper. The numerical method is based on a nonstandard approximation of the second partial derivative. The scheme is not only unconditionally stable and positive, but also allows us to solve the discrete equation explicitly. Monotone properties are studied in order to avoid unwanted oscillations of the numerical solution. The numerical results for European put option and European butterfly spread are compared to the standard finite difference scheme. It turns out that the proposed scheme is efficient and reliable.

scholarly journals The convergence of a numerical method for total variation flow

2021 ◽  
Vol 15 ◽  
pp. 174830262110113
Author(s):  
Qianying Hong ◽  
Ming-jun Lai ◽  
Jingyue Wang
Keyword(s):  
Finite Difference ◽  
Difference Scheme ◽  
Numerical Method ◽  
Convergence Analysis ◽  
Total Variation ◽  
Iterative Algorithm ◽  
Finite Difference Scheme ◽  
Gradient Flow ◽  
Time Dependent ◽  
Total Variation Flow

We present a convergence analysis for a finite difference scheme for the time dependent partial different equation called gradient flow associated with the Rudin-Osher-Fetami model. We devise an iterative algorithm to compute the solution of the finite difference scheme and prove the convergence of the iterative algorithm. Finally computational experiments are shown to demonstrate the convergence of the finite difference scheme.

scholarly journals A robust numerical solution to a time-fractional Black–Scholes equation

2021 ◽  
Vol 2021 (1) ◽  
Author(s):  
S. M. Nuugulu ◽  
F. Gideon ◽  
K. C. Patidar
Keyword(s):  
Finite Difference ◽  
Stock Options ◽  
Stochastic Dynamics ◽  
European Options ◽  
Numerical Convergence ◽  
Put Option ◽  
Implicit Finite Difference Scheme ◽  
Black Scholes ◽  
Implicit Finite Difference ◽  
Rigorous Mathematical Analysis

AbstractDividend paying European stock options are modeled using a time-fractional Black–Scholes (tfBS) partial differential equation (PDE). The underlying fractional stochastic dynamics explored in this work are appropriate for capturing market fluctuations in which random fractional white noise has the potential to accurately estimate European put option premiums while providing a good numerical convergence. The aim of this paper is two fold: firstly, to construct a time-fractional (tfBS) PDE for pricing European options on continuous dividend paying stocks, and, secondly, to propose an implicit finite difference method for solving the constructed tfBS PDE. Through rigorous mathematical analysis it is established that the implicit finite difference scheme is unconditionally stable. To support these theoretical observations, two numerical examples are presented under the proposed fractional framework. Results indicate that the tfBS and its proposed numerical method are very effective mathematical tools for pricing European options.

scholarly journals Weak solvability of the unconditionally stable difference scheme for the coupled sine-Gordon system

2020 ◽  
Vol 25 (6) ◽  
pp. 997-1014
Author(s):  
Ozgur Yildirim ◽  
Meltem Uzun
Keyword(s):  
Difference Scheme ◽  
Numerical Method ◽  
Existence And Uniqueness ◽  
Numerical Experiments ◽  
Finite Difference Schemes ◽  
Order Of Accuracy ◽  
Unconditionally Stable ◽  
First Order ◽  
The Difference ◽  
Weak Solvability

In this paper, we study the existence and uniqueness of weak solution for the system of finite difference schemes for coupled sine-Gordon equations. A novel first order of accuracy unconditionally stable difference scheme is considered. The variational method also known as the energy method is applied to prove unique weak solvability.We also present a new unified numerical method for the approximate solution of this problem by combining the difference scheme and the fixed point iteration. A test problem is considered, and results of numerical experiments are presented with error analysis to verify the accuracy of the proposed numerical method.

scholarly journals A Comparative Study between Implicit and Crank-Nicolson Finite Difference Method for Option Pricing

2020 ◽  
Vol 40 (1) ◽  
pp. 13-27
Author(s):  
Tanmoy Kumar Debnath ◽  
ABM Shahadat Hossain
Keyword(s):  
Finite Difference ◽  
Finite Difference Method ◽  
Option Pricing ◽  
Difference Method ◽  
Finite Difference Methods ◽  
Put Option ◽  
Black Scholes ◽  
Implicit Finite Difference ◽  
Difference Methods ◽  
Crank Nicolson

In this paper, we have applied the finite difference methods (FDMs) for the valuation of European put option (EPO). We have mainly focused the application of Implicit finite difference method (IFDM) and Crank-Nicolson finite difference method (CNFDM) for option pricing. Both these techniques are used to discretized Black-Scholes (BS) partial differential equation (PDE). We have also compared the convergence of the IFDM and CNFDM to the analytic BS price of the option. This turns out a conclusion that both these techniques are fairly fruitful and excellent for option pricing. GANIT J. Bangladesh Math. Soc.Vol. 40 (2020) 13-27

PENENTUAN HARGA OPSI DENGAN MODEL BLACK-SCHOLES MENGGUNALKAN METODE BEDA HINGGA FORWARD TIME CENTRAL SPACE

2018 ◽  
Vol 1 (1) ◽  
pp. 45
Author(s):  
Werry Febrianti
Keyword(s):  
Finite Difference ◽  
Finite Difference Method ◽  
Difference Method ◽  
Option Price ◽  
Call Option ◽  
Put Option ◽  
Daily Data ◽  
Black Scholes ◽  
One Year ◽  
The Right

Option can be defined as a contract between two sides/parties said party one and party two. Party one has the right to buy or sell of stock to party two. Party two can invest by observe the put option price or call option price on a time period in the option contract. Black-Scholes option solution using finite difference method based on forward time central space (FTCS) can be used as the reference for party two in the investment determining. Option price determining by using Black-Scholes was applied on Samsung stock (SSNLF) by using finite difference method FTCS. Daily data of Samsung stock in one year was processed to obtain the volatility of the stock. Then, the call option and put option are calculated by using FTCS method after discretization on the Black-Scholes model. The value of call option was obtained as $1.457695030014260 and the put option value was obtained as $1.476925604670225.

A NUMERICAL METHOD FOR 1D TIME-DEPENDENT SCHRÖDINGER EQUATION USING RADIAL BASIS FUNCTIONS

2013 ◽  
Vol 10 (02) ◽  
pp. 1341010 ◽  
Author(s):  
TONGSONG JIANG ◽  
ZHAOLIN JIANG ◽  
JOSEPH KOLIBAL
Keyword(s):  
Finite Difference ◽  
Difference Scheme ◽  
Numerical Method ◽  
Radial Basis Functions ◽  
Finite Difference Scheme ◽  
Good Accuracy ◽  
Basis Functions ◽  
Time Dependent ◽  
Numerical Examples ◽  
Radial Basis

This paper proposes a new numerical method to solve the 1D time-dependent Schrödinger equations based on the finite difference scheme by means of multiquadrics (MQ) and inverse multiquadrics (IMQ) radial basis functions. The numerical examples are given to confirm the good accuracy of the proposed methods.

A family of positivity preserving schemes for numerical solution of Black–Scholes equation

2016 ◽  
Vol 03 (04) ◽  
pp. 1650025
Author(s):  
M. Mehdizadeh Khalsaraei ◽  
R. Shokri Jahandizi
Keyword(s):  
Differential Equation ◽  
Partial Differential Equation ◽  
Exact Solution ◽  
Numerical Solution ◽  
Numerical Scheme ◽  
Initial Vector ◽  
Positivity Preserving ◽  
Fully Implicit ◽  
Black Scholes ◽  
Spurious Oscillations

When one solves the Black–Scholes partial differential equation, it is of great important that numerical scheme to be free of spurious oscillations and satisfy the positivity requirement. With positivity, we mean, the component non-negativity of the initial vector, is preserved in time for the exact solution. Numerically, such property for fully implicit scheme is not always satisfied by approximated solutions and they generate spurious oscillations in the presence of discontinuous payoff. In this paper, by using the nonstandard discretization strategy, we propose a new scheme that is free of spurious oscillations and satisfies the positivity requirement.

3-D traveltime computation using second‐order ENO scheme

Geophysics ◽  
1999 ◽  
Vol 64 (6) ◽  
pp. 1867-1876 ◽  
Author(s):  
Seongjai Kim ◽  
Richard Cook
Keyword(s):  
Finite Difference ◽  
Difference Scheme ◽  
Eikonal Equation ◽  
Second Order ◽  
Order Accuracy ◽  
Unconditionally Stable ◽  
Velocity Models ◽  
Box Scheme ◽  
Initialization Scheme ◽  
Eno Scheme

We consider a second‐order finite difference scheme to solve the eikonal equation. Upwind differences are requisite to sharply resolve discontinuities in the traveltime derivatives, whereas centered differences improve the accuracy of the computed traveltime. A second‐order upwind essentially non‐oscillatory (ENO) scheme satisfies these requirements. It is implemented with a dynamic down ’n’ out (DNO) marching, an expanding box approach. To overcome the instability of such an expanding box scheme, the algorithm incorporates an efficient post sweeping (PS), a correction‐by‐iteration method. Near the source, an efficient and accurate mesh‐refinement initialization scheme is suggested for the DNO marching. The resulting algorithm, ENO-DNO-PS, turns out to be unconditionally stable, of second‐order accuracy, and efficient; for various synthetic and real velocity models having large contrasts, two PS iterations produce traveltimes accurate enough to complete the computation.

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