Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
6895790 | European Journal of Operational Research | 2016 | 8 Pages |
Abstract
In this paper, we develop a fast and accurate numerical method for pricing of the three-asset equity-linked securities options. The option pricing model is based on the Black-Scholes partial differential equation. The model is discretized by using a non-uniform finite difference method and the resulting discrete equations are solved by using an operator splitting method. For fast and accurate calculation, we put more grid points near the singularity of the nonsmooth payoff function. To demonstrate the accuracy and efficiency of the proposed numerical method, we compare the results of the method with those from Monte Carlo simulation in terms of computational cost and accuracy. The numerical results show that the cost of the proposed method is comparable to that of the Monte Carlo simulation and it provides more stable hedging parameters such as the Greeks.
Related Topics
Physical Sciences and Engineering
Computer Science
Computer Science (General)
Authors
Junseok Kim, Taekkeun Kim, Jaehyun Jo, Yongho Choi, Seunggyu Lee, Hyeongseok Hwang, Minhyun Yoo, Darae Jeong,