No label defined (Q4955537)

The paper is devoted to explanation of numerical implementation of the initial-boundary problem for the Black and Scholes equation \[ \frac{\partial u}{\partial t}+\frac{1}{2}\sigma^2x^2 \frac{\partial^2 u}{\partial x^2}+ xr\frac{\partial u}{\partial x}-ru=0 \quad \text{in} \quad R^+\times ]0,T[, \] that arises in finance for the pricing of options. Here \(u(x,t)\) is a price of an option (put or call) on an asset of value \(x\) at time \(t\), \(\sigma\) is the volatility of the asset and \(r\) is the risk free interest rate. The authors present a containing statement of the finance problem on an example of American options and discuss mathematical properties of the problem. They offer a mixed numerical solution method consisting of the discretization of the partial differential equation (PDE) in time and the finite element method for the solution of the resulting system of PDEs with respect to space variables. They consider in detail a two space dimensional problems. A great attention is given for the problem of automatic triangulation of the solution's space domain. An algorithm of the Delaunay triangulation is explained. The main problem considered in the paper is the mesh adaptation. Such kind of procedure based on a change of metric in the Delaunay-Voronoi algorithm that was worked out by \textit{F. Hecht} [The mesh adapting software: bamg. INRIA Report (1998)] is explained, too. Numerical test of the mesh adoption procedure is described in the paper.