Advances in Differential Equations and Control Processes
Volume 6, Issue 1, Pages 49 - 55
(August 2010)
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A NEW FINITE DIFFERENCE METHOD FOR NUMERICAL SOLUTION OF BLACK-SCHOLES PDE
P. Sargolzaei and F. Soleymani
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Abstract: A new backward finite difference scheme is developed for numerical solution of Black-Scholes partial differential equation when this PDE is transformed to the heat equation. The orders of discretizations along the independent variables are two. The main feature of our proposed method is that, it is a fully implicit method which is so important from the viewpoint of practical applications of option pricing. An illustrative example is furnished to show the accuracy of the proposed method. |
Keywords and phrases: option pricing, backward finite difference approximation, Black-Scholes PDE, implicit method. |
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