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Abstract: The pricing of American call option with transaction cost is a free boundary problem. Using a new transformation method the boundary is made to follow a certain known trajectory in time. The new transformed problem is solved by various finite difference methods, such as explicit and implicit schemes. Broyden's and Schubert's methods are applied as a modification to Newton's method in the case of nonlinearity in the equation. An alternating direction explicit method with second-order accuracy in time is used as an example in this paper to demonstrate the technique. Numerical results demonstrate the efficiency and the rate of convergence of the methods.
Fuente: International Journal of Computer Mathematics, 2017, 94(2), 345-362
Editorial: Taylor & Francis
Año de publicación: 2017
Nº de páginas: 18
Tipo de publicación: Artículo de Revista
DOI: 10.1080/00207160.2015.1108409
ISSN: 0020-7160,1029-0265
Proyecto español: MTM2013-41765-P
Url de la publicación: https://doi.org/10.1080/00207160.2015.1108409
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VERA EGOROVA
TAN, S.H.
LAI, C.H.
COMPANY ROSSI, RAFAEL
JÓDAR SÁNCHEZ, LUCAS ANTONIO
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