Issue |
ESAIM: M2AN
Volume 43, Number 6, November-December 2009
|
|
---|---|---|
Page(s) | 1045 - 1061 | |
DOI | https://doi.org/10.1051/m2an/2009014 | |
Published online | 12 June 2009 |
Consistent stable difference schemes for nonlinear Black-Scholes equations modelling option pricing with transaction costs
Instituto Universitario de Matemática Multidisciplinar, Universidad Politécnica de Valencia, Edificio 8G, piso 2, P.O. Box 46022, Valencia,
Spain. rcompany@imm.upv.es; ljodar@imm.upv.es; jrpt60@gmail.com
Received:
1
August
2008
Revised:
25
February
2009
This paper deals with the numerical solution of nonlinear Black-Scholes equation modeling European vanilla call option pricing under transaction costs. Using an explicit finite difference scheme consistent with the partial differential equation valuation problem, a sufficient condition for the stability of the solution is given in terms of the stepsize discretization variables and the parameter measuring the transaction costs. This stability condition is linked to some properties of the numerical approximation of the Gamma of the option, previously obtained. Results are illustrated with numerical examples.
Mathematics Subject Classification: 35K55 / 65M12 / 39A10 / 90A09
Key words: Nonlinear Black-Scholes equation / option pricing / numerical analysis / transaction costs.
© EDP Sciences, SMAI, 2009
Current usage metrics show cumulative count of Article Views (full-text article views including HTML views, PDF and ePub downloads, according to the available data) and Abstracts Views on Vision4Press platform.
Data correspond to usage on the plateform after 2015. The current usage metrics is available 48-96 hours after online publication and is updated daily on week days.
Initial download of the metrics may take a while.