A Hybrid Finite Difference Method for Pricing Two-Asset Double Barrier Options
The pricing of the two-asset double barrier option is modeled as an initial-boundary value problem of the two-dimensional Black-Scholes partial differential equation. We use the hybrid finite different method to solve the problem. The hybrid method is a combination of the Laplace transform and a fin...
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Hindawi Limited
2015-01-01
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| Series: | Mathematical Problems in Engineering |
| Online Access: | http://dx.doi.org/10.1155/2015/692695 |
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doaj-14037bf7411d4a5e949531b9bf7f25702020-11-24T21:09:01ZengHindawi LimitedMathematical Problems in Engineering1024-123X1563-51472015-01-01201510.1155/2015/692695692695A Hybrid Finite Difference Method for Pricing Two-Asset Double Barrier OptionsY. L. Hsiao0S. Y. Shen1Andrew M. L. Wang2Department of Finance, National Dong Hwa University, Hualien 97401, TaiwanDepartment of Mathematics, National Cheng Kung University, Tainan 70101, TaiwanGraduate Institute of Finance and Banking, National Cheng Kung University, Tainan 70101, TaiwanThe pricing of the two-asset double barrier option is modeled as an initial-boundary value problem of the two-dimensional Black-Scholes partial differential equation. We use the hybrid finite different method to solve the problem. The hybrid method is a combination of the Laplace transform and a finite difference method. It is more efficient than a traditional finite difference method to obtain a solution without a step-by-step process. The method is implemented on a computer. Two numerical examples are calculated to verify the performance of the hybrid method. In our numerical examples, the convergence rate of the method is approximately two. We conclude that the method is efficient for pricing two-asset barrier options.http://dx.doi.org/10.1155/2015/692695 |
| collection |
DOAJ |
| language |
English |
| format |
Article |
| sources |
DOAJ |
| author |
Y. L. Hsiao S. Y. Shen Andrew M. L. Wang |
| spellingShingle |
Y. L. Hsiao S. Y. Shen Andrew M. L. Wang A Hybrid Finite Difference Method for Pricing Two-Asset Double Barrier Options Mathematical Problems in Engineering |
| author_facet |
Y. L. Hsiao S. Y. Shen Andrew M. L. Wang |
| author_sort |
Y. L. Hsiao |
| title |
A Hybrid Finite Difference Method for Pricing Two-Asset Double Barrier Options |
| title_short |
A Hybrid Finite Difference Method for Pricing Two-Asset Double Barrier Options |
| title_full |
A Hybrid Finite Difference Method for Pricing Two-Asset Double Barrier Options |
| title_fullStr |
A Hybrid Finite Difference Method for Pricing Two-Asset Double Barrier Options |
| title_full_unstemmed |
A Hybrid Finite Difference Method for Pricing Two-Asset Double Barrier Options |
| title_sort |
hybrid finite difference method for pricing two-asset double barrier options |
| publisher |
Hindawi Limited |
| series |
Mathematical Problems in Engineering |
| issn |
1024-123X 1563-5147 |
| publishDate |
2015-01-01 |
| description |
The pricing of the two-asset double barrier option is modeled as an initial-boundary
value problem of the two-dimensional Black-Scholes partial differential equation. We use
the hybrid finite different method to solve the problem. The hybrid method is a combination
of the Laplace transform and a finite difference method. It is more efficient than a
traditional finite difference method to obtain a solution without a step-by-step process. The
method is implemented on a computer. Two numerical examples are calculated to verify
the performance of the hybrid method. In our numerical examples, the convergence rate
of the method is approximately two. We conclude that the method is efficient for pricing
two-asset barrier options. |
| url |
http://dx.doi.org/10.1155/2015/692695 |
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