Finite volume methods for the valuation of American options
Université de Marne-la-Vallée, Champs-sur-Marne, 77454
Marne-la-Vallée, France. firstname.lastname@example.org
Revised: 5 October 2005
We consider the use of finite volume methods for the approximation of a parabolic variational inequality arising in financial mathematics. We show, under some regularity conditions, the convergence of the upwind implicit finite volume scheme to a weak solution of the variational inequality in a bounded domain. Some results, obtained in comparison with other methods on two dimensional cases, show that finite volume schemes can be accurate and efficient.
Mathematics Subject Classification: 65M12
Key words: American option / variational inequality / finite volume method / convergence of numerical scheme.
© EDP Sciences, SMAI, 2006