Qualitatively stable nonstandard finite difference scheme for numerical solution of the nonlinear Black-Scholes equation
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Publication:2036089
PDEs in connection with game theory, economics, social and behavioral sciences (35Q91) Finite difference methods for initial value and initial-boundary value problems involving PDEs (65M06) Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60)
Summary: In this paper, we use a numerical method for solving the nonlinear Black-Scholes partial differential equation of the European option under transaction costs, which is based on the nonstandard discretization of the spatial derivatives. The proposed scheme, in addition to the unconditional positivity, is stable, consistent, and monotone. In order to illustrate the efficiency of the new method, numerical results have been performed by four models.
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