scholarly journals A Nonstandard Finite Difference Method for a Generalized Black–Scholes Equation

Symmetry ◽  
2022 ◽  
Vol 14 (1) ◽  
pp. 141
Author(s):  
Mohammad Mehdizadeh Khalsaraei ◽  
Mohammad Mehdi Rashidi ◽  
Ali Shokri ◽  
Higinio Ramos ◽  
Pari Khakzad

An implicit finite difference scheme for the numerical solution of a generalized Black–Scholes equation is presented. The method is based on the nonstandard finite difference technique. The positivity property is discussed and it is shown that the proposed method is consistent, stable and also the order of the scheme respect to the space variable is two. As the Black–Scholes model relies on symmetry of distribution and ignores the skewness of the distribution of the asset, the proposed method will be more appropriate for solving such symmetric models. In order to illustrate the efficiency of the new method, we applied it on some test examples. The obtained results confirm the theoretical behavior regarding the order of convergence. Furthermore, the numerical results are in good agreement with the exact solution and are more accurate than other existing results in the literature.

2021 ◽  
Vol 2021 (1) ◽  
Author(s):  
S. M. Nuugulu ◽  
F. Gideon ◽  
K. C. Patidar

AbstractDividend paying European stock options are modeled using a time-fractional Black–Scholes (tfBS) partial differential equation (PDE). The underlying fractional stochastic dynamics explored in this work are appropriate for capturing market fluctuations in which random fractional white noise has the potential to accurately estimate European put option premiums while providing a good numerical convergence. The aim of this paper is two fold: firstly, to construct a time-fractional (tfBS) PDE for pricing European options on continuous dividend paying stocks, and, secondly, to propose an implicit finite difference method for solving the constructed tfBS PDE. Through rigorous mathematical analysis it is established that the implicit finite difference scheme is unconditionally stable. To support these theoretical observations, two numerical examples are presented under the proposed fractional framework. Results indicate that the tfBS and its proposed numerical method are very effective mathematical tools for pricing European options.


2021 ◽  
Vol 13 (2) ◽  
pp. 60
Author(s):  
Yuanyuan Yang ◽  
Gongsheng Li

We set forth a time-fractional logistic model and give an implicit finite difference scheme for solving of the model. The L^2 stability and convergence of the scheme are proved with the aids of discrete Gronwall inequality, and numerical examples are presented to support the theoretical analysis.


2020 ◽  
Vol 40 (1) ◽  
pp. 13-27
Author(s):  
Tanmoy Kumar Debnath ◽  
ABM Shahadat Hossain

In this paper, we have applied the finite difference methods (FDMs) for the valuation of European put option (EPO). We have mainly focused the application of Implicit finite difference method (IFDM) and Crank-Nicolson finite difference method (CNFDM) for option pricing. Both these techniques are used to discretized Black-Scholes (BS) partial differential equation (PDE). We have also compared the convergence of the IFDM and CNFDM to the analytic BS price of the option. This turns out a conclusion that both these techniques are fairly fruitful and excellent for option pricing. GANIT J. Bangladesh Math. Soc.Vol. 40 (2020) 13-27


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