A weighted finite difference method for subdiffusive Black-Scholes model
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Publication:2194785
Caputo fractional derivativeEuropean optionsubdiffusiontime fractional Black-Scholes modelweighted finite difference method
Fractional derivatives and integrals (26A33) Fractional partial differential equations (35R11) Finite difference methods for initial value and initial-boundary value problems involving PDEs (65M06) Stability and convergence of numerical methods for initial value and initial-boundary value problems involving PDEs (65M12) Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60)
Abstract: In this paper we focus on the subdiffusive Black Scholes model. The main part of our work consists of the finite difference method as a numerical approach to the option pricing in the considered model. We derive the governing fractional differential equation and the related weighted numerical scheme being a generalization of the classical Crank-Nicolson scheme. The proposed method has order of accuracy with respect to time where is the subdiffusion parameter, and with respect to space. Further, we provide the stability and convergence analysis. Finally, we present some numerical results.
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Cited in
(15)- Weighted BMO and discrete time hedging within the Black-Scholes model
- Nonuniform finite difference scheme for the three-dimensional time-fractional Black-Scholes equation
- Option pricing under the subordinated market models
- A second order numerical method for the time-fractional Black-Scholes European option pricing model
- A computational weighted finite difference method for American and barrier options in subdiffusive Black-Scholes model
- Comparative study on electroosmosis modulated flow of MHD viscoelastic fluid in the presence of modified Darcy's law
- A wavelet collocation method for fractional Black-Scholes equations by subdiffusive model
- A fast compact difference scheme with unequal time-steps for the tempered time-fractional Black–Scholes model
- Optimal calculations for the space-time fractional derivative option pricing models with stochastic liquidity risk and volatility using a combination neural network
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- Higher order graded mesh scheme for time fractional differential equations
- An efficient wavelet method for the time-fractional Black-Scholes equations
- A tempered subdiffusive Black-Scholes model
- Pricing of geometric average Asian option under the sub-diffusion Merton interest rate model
- About subordinated generalizations of 3 classical models of option pricing
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