Displaying similar documents to “Consistent stable difference schemes for nonlinear Black-Scholes equations modelling option pricing with transaction costs”

DG method for the numerical pricing of two-asset European-style Asian options with fixed strike

Jiří Hozman, Tomáš Tichý (2017)

Applications of Mathematics

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The evaluation of option premium is a very delicate issue arising from the assumptions made under a financial market model, and pricing of a wide range of options is generally feasible only when numerical methods are involved. This paper is based on our recent research on numerical pricing of path-dependent multi-asset options and extends these results also to the case of Asian options with fixed strike. First, we recall the three-dimensional backward parabolic PDE describing the evolution...

Numerical schemes for a three component Cahn-Hilliard model

Franck Boyer, Sebastian Minjeaud (2011)

ESAIM: Mathematical Modelling and Numerical Analysis - Modélisation Mathématique et Analyse Numérique

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In this article, we investigate numerical schemes for solving a three component Cahn-Hilliard model. The space discretization is performed by using a Galerkin formulation and the finite element method. Concerning the time discretization, the main difficulty is to write a scheme ensuring, at the discrete level, the decrease of the free energy and thus the stability of the method. We study three different schemes and prove existence and convergence theorems. Theoretical results are illustrated...

DG method for numerical pricing of multi-asset Asian options—the case of options with floating strike

Jiří Hozman, Tomáš Tichý (2017)

Applications of Mathematics

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Option pricing models are an important part of financial markets worldwide. The PDE formulation of these models leads to analytical solutions only under very strong simplifications. For more general models the option price needs to be evaluated by numerical techniques. First, based on an ideal pure diffusion process for two risky asset prices with an additional path-dependent variable for continuous arithmetic average, we present a general form of PDE for pricing of Asian option contracts...

Option valuation under the VG process by a DG method

Jiří Hozman, Tomáš Tichý (2021)

Applications of Mathematics

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The paper presents a discontinuous Galerkin method for solving partial integro-differential equations arising from the European as well as American option pricing when the underlying asset follows an exponential variance gamma process. For practical purposes of numerical solving we introduce the modified option pricing problem resulting from a localization to a bounded domain and an approximation of small jumps, and we discuss the related error estimates. Then we employ a robust numerical...

Convergence of a high-order compact finite difference scheme for a nonlinear Black–Scholes equation

Bertram Düring, Michel Fournié, Ansgar Jüngel (2004)

ESAIM: Mathematical Modelling and Numerical Analysis - Modélisation Mathématique et Analyse Numérique

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A high-order compact finite difference scheme for a fully nonlinear parabolic differential equation is analyzed. The equation arises in the modeling of option prices in financial markets with transaction costs. It is shown that the finite difference solution converges locally uniformly to the unique viscosity solution of the continuous equation. The proof is based on a careful study of the discretization matrices and on an abstract convergence result due to Barles and Souganides. ...

Reliable numerical modelling of malaria propagation

István Faragó, Miklós Emil Mincsovics, Rahele Mosleh (2018)

Applications of Mathematics

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We investigate biological processes, particularly the propagation of malaria. Both the continuous and the numerical models on some fixed mesh should preserve the basic qualitative properties of the original phenomenon. Our main goal is to give the conditions for the discrete (numerical) models of the malaria phenomena under which they possess some given qualitative property, namely, to be between zero and one. The conditions which guarantee this requirement are related to the time-discretization...

Low Volatility Options and Numerical Diffusion of Finite Difference Schemes

Milev, Mariyan, Tagliani, Aldo (2010)

Serdica Mathematical Journal

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2000 Mathematics Subject Classification: 65M06, 65M12. In this paper we explore the numerical diffusion introduced by two nonstandard finite difference schemes applied to the Black-Scholes partial differential equation for pricing discontinuous payoff and low volatility options. Discontinuities in the initial conditions require applying nonstandard non-oscillating finite difference schemes such as the exponentially fitted finite difference schemes suggested by D. Duffy and...