An IMEX‐BDF2 compact scheme for pricing options under regime‐switching jump‐diffusion models

2019 ◽  
Vol 42 (8) ◽  
pp. 2646-2663 ◽  
Author(s):  
Yingzi Chen ◽  
Aiguo Xiao ◽  
Wansheng Wang
Keyword(s):  
Regime Switching ◽  
Jump Diffusion ◽  
Diffusion Models ◽  
Compact Scheme ◽  
Pricing Options

FOURTH-ORDER COMPACT SCHEME FOR OPTION PRICING UNDER THE MERTON’S AND KOU’S JUMP-DIFFUSION MODELS

2018 ◽  
Vol 21 (04) ◽  
pp. 1850027 ◽  
Author(s):  
KULDIP SINGH PATEL ◽  
MANI MEHRA
Keyword(s):  
Fourth Order ◽  
Initial Conditions ◽  
Linear Equations ◽  
Jump Diffusion ◽  
Diffusion Models ◽  
Compact Scheme ◽  
Discrete Problem ◽  
Option Prices ◽  
Fully Discrete ◽  
Fourth Order Compact Scheme

In this paper, a compact scheme with three time levels is proposed to solve the partial integro-differential equation that governs the option prices in jump-diffusion models. In the proposed compact scheme, the second derivative approximation of the unknowns is approximated using the value of these unknowns and their first derivative approximations, thereby allowing us to obtain a tridiagonal system of linear equations for a fully discrete problem. Moreover, the consistency and stability of the proposed compact scheme are proved. Owing to the low regularity of typical initial conditions, a smoothing operator is employed to ensure the fourth-order convergence rate. Numerical illustrations concerning the pricing of European options under the Merton’s and Kou’s jump-diffusion models are presented to validate the theoretical results.

scholarly journals Option pricing under regime-switching jump–diffusion models

2014 ◽  
Vol 256 ◽  
pp. 152-167 ◽  
Author(s):  
Massimo Costabile ◽  
Arturo Leccadito ◽  
Ivar Massabó ◽  
Emilio Russo
Keyword(s):  
Option Pricing ◽  
Regime Switching ◽  
Jump Diffusion ◽  
Diffusion Models

Pricing Options in Jump-Diffusion Models: An Extrapolation Approach

2008 ◽  
Vol 56 (2) ◽  
pp. 304-325 ◽  
Author(s):  
Liming Feng ◽  
Vadim Linetsky
Keyword(s):  
Jump Diffusion ◽  
Diffusion Models ◽  
Pricing Options
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