Comparing algebraic and numerical solutions of classical diffusion process equations in computational financial mathematics
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: We revise the interrelations between the classical Black-Scholes equation, the diffusion equation and Burgers equation. Some of the algebraic properties the diffusion equation shows are elaborated and qualitatively presented. The related numerical elementary recipes are briefly elucidated in context of the diffusion equation. The quality of the approximations to the exact solutions is compared throughout the visualizations. The article mainly is based on the pedagogical style of the presentations to the Novacella Easter School 2000 on Financial Mathematics.
- Equivalence and new exact solutions to the Black Scholes and diffusion equations
- Matrix-based numerical modelling of financial differential equations
- Analytical solution and convergence analysis of Black-Sholes equation
- A study of a new kind of universal difference schemes for solving Black-Scholes equation
- A comparison of numerical solutions of fractional diffusion models in finance
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