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AN EFFICIENT AND ROBUST NUMERICAL METHOD FOR OPTION PRICES IN A TWO-ASSET JUMP-DIFFUSION MODELopen accessAN EFFICIENT AND ROBUST NUMERICAL METHOD FOR OPTION PRICES IN A TWO-ASSET JUMP-DIFFUSION MODEL
- Other Titles
- AN EFFICIENT AND ROBUST NUMERICAL METHOD FOR OPTION PRICES IN A TWO-ASSET JUMP-DIFFUSION MODEL
- Issue Date
- Nov-2020
- Publisher
- 한국수학교육학회
- Keywords
- jump-diffusion; Simpson’s rule; non-uniform grid; implicit finite difference method; derivative securities.
- Citation
- 순수 및 응용수학, v.27, no.4, pp.231 - 249
- Journal Title
- 순수 및 응용수학
- Volume
- 27
- Number
- 4
- Start Page
- 231
- End Page
- 249
- ISSN
- 1226-0657
- Abstract
- We present an efficient and robust finite difference method for a two- asset jump diffusion model, which is a partial integro-differential equation (PIDE). To speed up a computational time, we compute a matrix so that we can calculate the non-local integral term fast by a simple matrix-vector operation. In addition, we use bilinear interpolation to solve integral term of PIDE. We can obtain more stable value by using the payoff-consistent extrapolation. We provide numerical experiments to demonstrate a performance of the proposed numerical method. The numerical results show the robustness and accuracy of the proposed method.
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Related Researcher
- Yang, Kisung
- College of Business Administration (School of Finance)