Comparison Of Two Numerical Methods For Computation Of American Type Of The Floating Strike Asian Option

The authors present a numerical approach for solving the free boundary problem for the Black-Scholes equation for pricing American style of floating strike Asian options. A fixed domain transformation of the free boundary problem into a parabolic equation defined on a fixed spatial domain is performed. As a result a nonlinear time-dependent term is involved in the resulting equation. Two new numerical algorithms are proposed. In the first algorithm a predictor-corrector scheme is used. The second one is based on the Newton method. Computational experiments, confirming the accuracy of the algorithms are presented and discussed.

Provided by: University of Rousse Topic: Big Data Date Added: May 2011 Format: PDF

Find By Topic