An alternating-direction implicit difference scheme for pricing Asian options
Summary: We propose a fast and stable numerical method to evaluate two-dimensional partial differential equation (PDE) for pricing arithmetic average Asian options. The numerical method is deduced by combining an alternating-direction technique and the central difference scheme on a piecewise uniform mesh. The numerical scheme is stable in the maximum norm, which is true for arbitrary volatility and arbitrary interest rate. It is proved that the scheme is second-order convergent with respect to the asset price. Numerical results support the theoretical results.
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