A Second Order Asymmetric Finite Difference Method for the Black-Scholes Equation of European Options

DOI

10.2991/icmess-14.2014.20How to use a DOI?

Keywords

Black-Scholes equation, European option pricing, asymmetric scheme, stability analysis, numerical example

Abstract

In this paper, we develop a fast numerical scheme for computing the European option pricing problems governed by the Black-Scholes equation. We prove that the proposed scheme has second order accuracy in both time and space. Under some restrictions, the stability of the proposed method in the sense of Von Neumann analysis is presented. It is shown that the proposed scheme has a good performance in the sense of the computational cost compare to the Crank-Nicolson scheme. Also the accuracy of the proposed scheme is better than the semi-implicit scheme in most cases.

Copyright

© 2014, 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/).

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TY  - CONF
AU  - Wenbin Feng
AU  - Philsu Kim
AU  - Xiangfan Piao
PY  - 2014/01
DA  - 2014/01
TI  - A Second Order Asymmetric Finite Difference Method for the Black-Scholes Equation of European Options
BT  - Proceedings of the 2014 International Conference on Management, Education and Social Science
PB  - Atlantis Press
SP  - 70
EP  - 73
SN  - 1951-6851
UR  - https://doi.org/10.2991/icmess-14.2014.20
DO  - 10.2991/icmess-14.2014.20
ID  - Feng2014/01
ER  -