A second-order ADI method for pricing options under fractional regime-switching models (Q6196447)

In this paper, the authors consider a second-order numerical scheme for fractional regime-switching option pricing models, based on the weighted and shifted Grunwald difference (WSGD) formula and Crank-Nicolson scheme. The sufficient conditions of the stability and convergence of the proposed scheme are studied in details. A second-order ADI method is proposed to accelerate the computation with a preconditioned direct solver for the discrete linear system. Numerical experiments on the fractional PDE, with known exact solution and European call options under multi-regime FMLS and CGMY models, are presented to show the convergence and efficiency of the proposed ADI approach. All numerical experiments are carried out by Matlab R2020a. Finally, conclusions are drawn in Section 6.