Finite volume methods for the valuation of American options

Julien Berton; Robert Eymard

ESAIM: Mathematical Modelling and Numerical Analysis (2006)

  • Volume: 40, Issue: 2, page 311-330
  • ISSN: 0764-583X

Abstract

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We consider the use of finite volume methods for the approximation of a parabolic variational inequality arising in financial mathematics. We show, under some regularity conditions, the convergence of the upwind implicit finite volume scheme to a weak solution of the variational inequality in a bounded domain. Some results, obtained in comparison with other methods on two dimensional cases, show that finite volume schemes can be accurate and efficient.

How to cite

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Berton, Julien, and Eymard, Robert. "Finite volume methods for the valuation of American options." ESAIM: Mathematical Modelling and Numerical Analysis 40.2 (2006): 311-330. <http://eudml.org/doc/249698>.

@article{Berton2006,
abstract = { We consider the use of finite volume methods for the approximation of a parabolic variational inequality arising in financial mathematics. We show, under some regularity conditions, the convergence of the upwind implicit finite volume scheme to a weak solution of the variational inequality in a bounded domain. Some results, obtained in comparison with other methods on two dimensional cases, show that finite volume schemes can be accurate and efficient. },
author = {Berton, Julien, Eymard, Robert},
journal = {ESAIM: Mathematical Modelling and Numerical Analysis},
keywords = {American option; variational inequality; finite volume method; convergence of numerical scheme.; convergence of numerical scheme},
language = {eng},
month = {6},
number = {2},
pages = {311-330},
publisher = {EDP Sciences},
title = {Finite volume methods for the valuation of American options},
url = {http://eudml.org/doc/249698},
volume = {40},
year = {2006},
}

TY - JOUR
AU - Berton, Julien
AU - Eymard, Robert
TI - Finite volume methods for the valuation of American options
JO - ESAIM: Mathematical Modelling and Numerical Analysis
DA - 2006/6//
PB - EDP Sciences
VL - 40
IS - 2
SP - 311
EP - 330
AB - We consider the use of finite volume methods for the approximation of a parabolic variational inequality arising in financial mathematics. We show, under some regularity conditions, the convergence of the upwind implicit finite volume scheme to a weak solution of the variational inequality in a bounded domain. Some results, obtained in comparison with other methods on two dimensional cases, show that finite volume schemes can be accurate and efficient.
LA - eng
KW - American option; variational inequality; finite volume method; convergence of numerical scheme.; convergence of numerical scheme
UR - http://eudml.org/doc/249698
ER -

References

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