Abstract
This article is devoted to the development and application of an Eulerian-Lagrangian method (ELM) for the solution of the Black-Scholes partial differential equation for the valuation of European option contracts. This method fully utilizes the transient behavior of the governing equations and generates very accurate option's fair values and their derivatives also known as option Greeks, even if coarse spatial grids and large time steps are used. Numerical experiments on two standard option contracts are presented which show that the ELM method (favorably) compares in terms of accuracy and efficiency to many other well-perceived methods.
Original language | English |
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Pages (from-to) | 293-329 |
Number of pages | 37 |
Journal | Numerical Methods for Partial Differential Equations |
Volume | 23 |
Issue number | 2 |
DOIs | |
Publication status | Published - Mar 2007 |
Keywords
- Black-Scholes equations
- Efficient simulation of option pricing
- Eulerian-Lagrangian methods
- Financial mathematics
- Mathematical finance
- Option-pricing
ASJC Scopus subject areas
- Analysis
- Numerical Analysis
- Computational Mathematics
- Applied Mathematics