Accurate Numerical Method for Pricing Two-Asset American Put Options
We develop an accurate finite difference scheme for pricing two-asset American put options. We use the central difference method for space derivatives and the implicit Euler method for the time derivative. Under certain mesh step size limitations, the matrix associated with the discrete operator is...
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| Format: | Article |
| Language: | English |
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Hindawi Limited
2013-01-01
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| Series: | Journal of Function Spaces and Applications |
| Online Access: | http://dx.doi.org/10.1155/2013/189235 |
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doaj-59e34a975aef4dc4b04f1a49aaaa76592020-11-24T23:01:32ZengHindawi LimitedJournal of Function Spaces and Applications0972-68021758-49652013-01-01201310.1155/2013/189235189235Accurate Numerical Method for Pricing Two-Asset American Put OptionsXianbin Wu0Junior College, Zhejiang Wanli University, Ningbo 315100, ChinaWe develop an accurate finite difference scheme for pricing two-asset American put options. We use the central difference method for space derivatives and the implicit Euler method for the time derivative. Under certain mesh step size limitations, the matrix associated with the discrete operator is an M-matrix, which ensures that the solutions are oscillation-free. We apply the maximum principle to the discrete linear complementarity problem in two mesh sets and derive the error estimates. It is shown that the scheme is second-order convergent with respect to the spatial variables. Numerical results support the theoretical results.http://dx.doi.org/10.1155/2013/189235 |
| collection |
DOAJ |
| language |
English |
| format |
Article |
| sources |
DOAJ |
| author |
Xianbin Wu |
| spellingShingle |
Xianbin Wu Accurate Numerical Method for Pricing Two-Asset American Put Options Journal of Function Spaces and Applications |
| author_facet |
Xianbin Wu |
| author_sort |
Xianbin Wu |
| title |
Accurate Numerical Method for Pricing Two-Asset American Put Options |
| title_short |
Accurate Numerical Method for Pricing Two-Asset American Put Options |
| title_full |
Accurate Numerical Method for Pricing Two-Asset American Put Options |
| title_fullStr |
Accurate Numerical Method for Pricing Two-Asset American Put Options |
| title_full_unstemmed |
Accurate Numerical Method for Pricing Two-Asset American Put Options |
| title_sort |
accurate numerical method for pricing two-asset american put options |
| publisher |
Hindawi Limited |
| series |
Journal of Function Spaces and Applications |
| issn |
0972-6802 1758-4965 |
| publishDate |
2013-01-01 |
| description |
We develop an accurate finite difference scheme for pricing two-asset American put options. We use the central difference method for space derivatives and the implicit Euler method for the time derivative. Under certain mesh step size limitations, the matrix associated with the discrete operator is an M-matrix, which ensures that the solutions are oscillation-free. We apply the maximum principle to the discrete linear complementarity problem in two mesh sets and derive the error estimates. It is shown that the scheme is second-order convergent with respect to the spatial variables. Numerical results support the theoretical results. |
| url |
http://dx.doi.org/10.1155/2013/189235 |
| work_keys_str_mv |
AT xianbinwu accuratenumericalmethodforpricingtwoassetamericanputoptions |
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1725639269708464128 |