A Second-order Finite Difference Method for Option Pricing Under Jump-diffusion Models

DOI10.1137/090777529zbMath1232.91712OpenAlexW2049599235MaRDI QIDQ3116423

Younhee Lee, Yong-Hoon Kwon

Publication date: 22 February 2012

Published in: SIAM Journal on Numerical Analysis (Search for Journal in Brave)

Full work available at URL: http://oasis.postech.ac.kr/handle/2014.oak/12933

zbMATH Keywords

finite difference methodoption pricingLévy processjump-diffusion modelpartial integro-differential equation

Mathematics Subject Classification ID

Processes with independent increments; Lévy processes (60G51) Numerical methods (including Monte Carlo methods) (91G60) Applications of stochastic analysis (to PDEs, etc.) (60H30) 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) Stochastic partial differential equations (aspects of stochastic analysis) (60H15) Numerical solutions to stochastic differential and integral equations (65C30)

Related Items (43)

An IMEX predictor–corrector method for pricing options under regime-switching jump-diffusion models ⋮ Rannacher time-marching with orthogonal spline collocation method for retrieving the discontinuous behavior of hedging parameters ⋮ A radial basis function based implicit-explicit method for option pricing under jump-diffusion models ⋮ Estimation and prediction under local volatility jump-diffusion model ⋮ Financial options pricing with regime-switching jump-diffusions ⋮ FOURTH-ORDER COMPACT SCHEME FOR OPTION PRICING UNDER THE MERTON’S AND KOU’S JUMP-DIFFUSION MODELS ⋮ A trustable shape parameter in the kernel-based collocation method with application to pricing financial options ⋮ Localized kernel-based approximation for pricing financial options under regime switching jump diffusion model ⋮ A reduced-order model based on cubic B-spline basis function and SSP Runge-Kutta procedure to investigate option pricing under jump-diffusion models ⋮ Iterative algorithm for the first passage time distribution in a jump-diffusion model with regime-switching, and its applications ⋮ Optimal uniform error estimates for moving <scp>least‐squares</scp> collocation with application to option pricing under jump‐diffusion processes ⋮ Second order accurate IMEX methods for option pricing under Merton and Kou jump-diffusion models ⋮ A variable step‐size extrapolated Crank–Nicolson method for option pricing under stochastic volatility model with jump ⋮ High Order Method for Variable Coefficient Integro-Differential Equations and Inequalities Arising In Option Pricing Pradeep ⋮ Pricing European options under stochastic looping contagion risk model ⋮ A second-order ADI method for pricing options under fractional regime-switching models ⋮ Compact IMEX scheme for a moving boundary PIDE system of the regime-switching jump-diffusion Asian option pricing ⋮ An RBF-FD method for pricing American options under jump-diffusion models ⋮ On the pricing of multi-asset options under jump-diffusion processes using meshfree moving least-squares approximation ⋮ Stability of an implicit method to evaluate option prices under local volatility with jumps ⋮ Cubic spline wavelets with four vanishing moments on the interval and their applications to option pricing under Kou model ⋮ Operator splitting schemes for the two-asset Merton jump-diffusion model ⋮ Unnamed Item ⋮ Wavelet-Galerkin method for second-order integro-differential equations on product domains ⋮ Comparison and survey of finite difference methods for pricing American options under finite activity jump-diffusion models ⋮ An efficient variable step-size method for options pricing under jump-diffusion models with nonsmooth payoff function ⋮ RBF-PU method for pricing options under the jump-diffusion model with local volatility ⋮ Numerical pricing of American options under two stochastic factor models with jumps using a meshless local Petrov-Galerkin method ⋮ ADI schemes for valuing European options under the Bates model ⋮ NUMERICAL SCHEMES FOR OPTION PRICING IN REGIME-SWITCHING JUMP DIFFUSION MODELS ⋮ IMEX schemes for pricing options under jump-diffusion models ⋮ An efficient numerical method for pricing option under jump diffusion model ⋮ DG method for pricing European options under Merton jump-diffusion model. ⋮ Adaptive finite differences and IMEX time-stepping to price options under Bates model ⋮ A robust numerical method for pricing American options under Kou's jump-diffusion models based on penalty method ⋮ Stability of numerical methods under the regime-switching jump-diffusion model with variable coefficients ⋮ Option valuation under the VG process by a DG method. ⋮ European option pricing under stochastic volatility jump-diffusion models with transaction cost ⋮ On the Variable Two-Step IMEX BDF Method for Parabolic Integro-differential Equations with Nonsmooth Initial Data Arising in Finance ⋮ Numerical study for European option pricing equations with non-levy jumps ⋮ A posteriori error control and adaptivity for the IMEX BDF2 method for PIDEs with application to options pricing models ⋮ Second-order convergent IMEX scheme for integro-differential equations with delays arising in option pricing under hard-to-borrow jump-diffusion models ⋮ Second-order IMEX scheme for a system of partial integro-differential equations from Asian option pricing under regime-switching jump-diffusion models

This page was built for publication: A Second-order Finite Difference Method for Option Pricing Under Jump-diffusion Models