Asset pricing for an affine jump-diffusion model using an FD method of lines on nonuniform meshes
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Date
2019
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Wiley
Access Rights
info:eu-repo/semantics/closedAccess
Abstract
We present a novel numerical scheme for the valuation of options under a well-known jump-diffusion model. European option pricing for such a case satisfies a 1 + 2 partial integro-differential equation (PIDE) including a double integral term, which is nonlocal. The proposed approach relies on nonuniform meshes with a focus on the discontinuous and degenerate areas of the model and applying quadratically convergent finite difference (FD) discretizations via the method of lines (MOL). A condition for observing the time stability of the fully discretized problem is given. Also, we report results of numerical experiments.
Description
Keywords
asset pricing, computational methods, double integral, FD method, jump diffusion
Journal or Series
Mathematical Methods in The Applied Sciences
WoS Q Value
Q2
Scopus Q Value
Q1
Volume
42
Issue
2
