An adaptive and explicit fourth order Runge-Kutta-Fehlberg method coupled with compact finite differencing for pricing American put options

DOI10.1007/s13160-021-00470-2zbMath1483.91257arXiv2007.04408MaRDI QIDQ2231609

Publication date: 30 September 2021

Published in: Japan Journal of Industrial and Applied Mathematics (Search for Journal in Brave)

Full work available at URL: https://arxiv.org/abs/2007.04408

zbMATH Keywords

compact finite difference method; Runge-Kutta-Fehlberg method; optimal exercise boundary; logarithmic transformation; American put options; fixed free boundary

Mathematics Subject Classification ID

91G60: Numerical methods (including Monte Carlo methods)

65M06: Finite difference methods for initial value and initial-boundary value problems involving PDEs

60G40: Stopping times; optimal stopping problems; gambling theory

91G20: Derivative securities (option pricing, hedging, etc.)

65L06: Multistep, Runge-Kutta and extrapolation methods for ordinary differential equations

65D15: Algorithms for approximation of functions

65M50: Mesh generation, refinement, and adaptive methods for the numerical solution of initial value and initial-boundary value problems involving PDEs

65L50: Mesh generation, refinement, and adaptive methods for ordinary differential equations