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Constructing positive reliable numerical solution for American call options: A new front-fixing approach

Abstract: A new front-fixing transformation is applied to the Black?Scholes equation for the American call option pricing problem. The transformed non-linear problem involves homogeneous boundary conditions independent of the free boundary. The numerical solution by an explicit finite-difference method is positive and monotone. Stability and consistency of the scheme are studied. The explicit proposed method is compared with other competitive implicit ones from the points of view accuracy and computational cost.

 Congress: Mathematical Modelling in Engineering and Human Behaviour Conference (16º : 2014 : Valencia)

 Fuente: Journal of Computational and Applied Mathematics, 2016, 291, 422-431

 Publisher: Elsevier

 Publication date: 01/01/2016

 No. of pages: 20

 Publication type: Article

 DOI: 10.1016/j.cam.2014.09.013

 ISSN: 0377-0427,1879-1778

 Publication Url: https://doi.org/10.1016/j.cam.2014.09.013

Authorship

COMPANY ROSSI, RAFAEL

JÓDAR SÁNCHEZ, LUCAS ANTONIO