An Efficient Difference Algorithm for Black-Scholes Equation with Payment of Dividend

DOI

10.2991/iccia.2012.113How to use a DOI?

Keywords

component, Black-Scholes equation, Three-layer difference scheme, calculation stability, error estimate, numerical example

Abstract

Black-Scholes equation is the basic equation of option pricing in financial mathematics, it is important to study its numerical solution in financial market. This paper constructs a new kind of high order accuracy numerical algorithm (Three-layer difference scheme) for Black-Scholes equation with payment of dividend. Secondly, it gives the convergence of scheme. Thirdly, the stability and error estimates are analyzed. Finally, the numerical examples show the feasibility and effectiveness of the scheme. The truncation error of Three-layer scheme is little worse than Crank-Nicolson scheme and computational cost is little better than Crank-Nicoslon scheme. Therefore, the scheme is better suitable for applying to calculate the option pricing in the demanding high level of instantaneity.

Copyright

© 2013, the Authors. Published by Atlantis Press.

Open Access

This is an open access article distributed under the CC BY-NC license (http://creativecommons.org/licenses/by-nc/4.0/).

Download article (PDF)

TY  - CONF
AU  - Lifei Wu
AU  - Xiaozhong Yang
PY  - 2014/05
DA  - 2014/05
TI  - An Efficient Difference Algorithm for Black-Scholes Equation with Payment of Dividend
BT  - Proceedings of the 2012 2nd International Conference on Computer and Information Application (ICCIA 2012)
PB  - Atlantis Press
SP  - 470
EP  - 473
SN  - 1951-6851
UR  - https://doi.org/10.2991/iccia.2012.113
DO  - 10.2991/iccia.2012.113
ID  - Wu2014/05
ER  -