Convergence of a finite volume element method for a generalized Black-Scholes equation transformed on finite interval

DOI10.1007/S11075-014-9838-8MaRDI QIDQ2514271zbMATH OpenOpenAlexFDO

Authors R. Valkov

Publication date 3 February 2015

Published in Numerical Algorithms (Search for Journal in Brave)

Full work available at URL https://doi.org/10.1007/s11075-014-9838-8

zbMATH Keywords

degenerate parabolic equationerror boundfinite volume element methodgeneralized Black-Scholes equationstability

Mathematics Subject Classification ID

Degenerate parabolic equations (35K65) Finite volume methods for initial value and initial-boundary value problems involving PDEs (65M08) Stability and convergence of numerical methods for initial value and initial-boundary value problems involving PDEs (65M12) Error bounds for initial value and initial-boundary value problems involving PDEs (65M15) Finite element, Rayleigh-Ritz and Galerkin methods for initial value and initial-boundary value problems involving PDEs (65M60) Numerical methods (including Monte Carlo methods) (91G60)

Review text

The author is concerned with the convergence analysis of a positivity-preserving fitted finite volume element method for a generalized Black-Scholes equation on finite intervals, featuring degeneracies at both boundary points. The approach consists in formulating the problem in a Galerkin-Petrov setting by means of spatial discretization. Then, the Garding-type coercivity for the associated bilinear form is established. Stability and error bounds for the solution of the fully discrete system are obtained.

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Cites work

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• Convergence of a fitted finite volume method for the penalized Black-Scholes equation governing European and American option pricing
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• Fitted finite volume method for a generalized Black-Scholes equation transformed on finite interval
• Numerical solution of problems in unbounded regions: coordinate transforms
• Stability of ADI schemes for multidimensional diffusion equations with mixed derivative terms
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Cited in

(11)

• A sixth order numerical method and its convergence for generalized Black-Scholes PDE
• A radial basis function -- Hermite finite difference approach to tackle cash-or-nothing and asset-or-nothing options
• Analysis and computation of an optimality equation arising in an impulse control problem with discrete and costly observations
• Option pricing using a computational method based on reproducing kernel
• Valuation of European options with liquidity shocks switching by fitted finite volume method
• Fitted finite volume method for a generalized Black-Scholes equation transformed on finite interval
• Stability and convergence analysis of discretizations of the Black-Scholes PDE with the linear boundary condition
• Convergence of a fitted finite volume method for pricing two dimensional assets with stochastic volatilities
• Analysis of a kernel-based method for some pricing financial options
• A fourth-order collocation scheme for generalized Black-Scholes model in financial decision-making
• Convergence of a fitted finite volume method for the penalized Black-Scholes equation governing European and American option pricing

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