IDEAS home Printed from https://ideas.repec.org/a/hin/jnlaaa/146745.html
   My bibliography  Save this article

Solving American Option Pricing Models by the Front Fixing Method: Numerical Analysis and Computing

Author

Listed:
  • R. Company
  • V. N. Egorova
  • L. Jódar

Abstract

This paper presents an explicit finite-difference method for nonlinear partial differential equation appearing as a transformed Black-Scholes equation for American put option under logarithmic front fixing transformation. Numerical analysis of the method is provided. The method preserves positivity and monotonicity of the numerical solution. Consistency and stability properties of the scheme are studied. Explicit calculations avoid iterative algorithms for solving nonlinear systems. Theoretical results are confirmed by numerical experiments. Comparison with other approaches shows that the proposed method is accurate and competitive.

Suggested Citation

  • R. Company & V. N. Egorova & L. Jódar, 2014. "Solving American Option Pricing Models by the Front Fixing Method: Numerical Analysis and Computing," Abstract and Applied Analysis, Hindawi, vol. 2014, pages 1-9, April.
    • Handle: RePEc:hin:jnlaaa:146745
    DOI: 10.1155/2014/146745
    as

    Download full text from publisher

    File URL: http://downloads.hindawi.com/journals/AAA/2014/146745.pdf
    Download Restriction: no
    File URL: http://downloads.hindawi.com/journals/AAA/2014/146745.xml
    Download Restriction: no
    File URL: https://libkey.io/10.1155/2014/146745?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Luca Vincenzo Ballestra, 2018. "Fast and accurate calculation of American option prices," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 41(2), pages 399-426, November.
    2. Chinonso Nwankwo & Weizhong Dai, 2020. "An Adaptive and Explicit Fourth Order Runge-Kutta-Fehlberg Method Coupled with Compact Finite Differencing for Pricing American Put Options," Papers 2007.04408, arXiv.org, revised Jul 2021.
    3. Rafael Company & Vera N. Egorova & Lucas Jódar, 2024. "An ETD Method for Vulnerable American Options," Mathematics, MDPI, vol. 12(4), pages 1-14, February.
    4. Company, Rafael & Egorova, Vera N. & Jódar, Lucas, 2021. "A front-fixing ETD numerical method for solving jump–diffusion American option pricing problems," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 189(C), pages 69-84.
    5. Vynnycky, M., 2023. "On boundary immobilization for one-dimensional Stefan-type problems with a moving boundary having initially parabolic-logarithmic behaviour," Applied Mathematics and Computation, Elsevier, vol. 444(C).
    6. María Consuelo Casabán & Rafael Company & Vera N. Egorova & Lucas Jódar, 2023. "Qualitative Numerical Analysis of a Free-Boundary Diffusive Logistic Model," Mathematics, MDPI, vol. 11(6), pages 1-19, March.
    7. Chinonso Nwankwo & Nneka Umeorah & Tony Ware & Weizhong Dai, 2022. "Deep learning and American options via free boundary framework," Papers 2211.11803, arXiv.org, revised Dec 2022.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hin:jnlaaa:146745. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mohamed Abdelhakeem (email available below). General contact details of provider: https://www.hindawi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.