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AN ADAPTIVE FINITE DIFFERENCE METHOD USING FAR-FIELD BOUNDARY CONDITIONS FOR THE BLACK-SCHOLES EQUATION
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 Title & Authors
AN ADAPTIVE FINITE DIFFERENCE METHOD USING FAR-FIELD BOUNDARY CONDITIONS FOR THE BLACK-SCHOLES EQUATION
Jeong, Darae; Ha, Taeyoung; Kim, Myoungnyoun; Shin, Jaemin; Yoon, In-Han; Kim, Junseok;
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 Abstract
We present an accurate and efficient numerical method for solving the Black-Scholes equation. The method uses an adaptive grid technique which is based on a far-field boundary position and the Peclet condition. We present the algorithm for the automatic adaptive grid generation: First, we determine a priori suitable far-field boundary location using the mathematical model parameters. Second, generate the uniform fine grid around the non-smooth point of the payoff and a non-uniform grid in the remaining regions. Numerical tests are presented to demonstrate the accuracy and efficiency of the proposed method. The results show that the computational time is reduced substantially with the accuracy being maintained.
 Keywords
Black-Scholes equation;finite difference method;far-field boundary conditions;adaptive grid;Peclet condition;
 Language
English
 Cited by
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PATH AVERAGED OPTION VALUE CRITERIA FOR SELECTING BETTER OPTIONS, Journal of the Korea Society for Industrial and Applied Mathematics, 2016, 20, 2, 163  crossref(new windwow)
3.
Accuracy, Robustness, and Efficiency of the Linear Boundary Condition for the Black-Scholes Equations, Discrete Dynamics in Nature and Society, 2015, 2015, 1  crossref(new windwow)
4.
Accurate and Efficient Computations of the Greeks for Options Near Expiry Using the Black-Scholes Equations, Discrete Dynamics in Nature and Society, 2016, 2016, 1  crossref(new windwow)
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