High order compact finite difference schemes for a nonlinear Black-Scholes equation

Bertram Düring, Michel Fournié and Ansgar Jüngel

No 01/07, CoFE Discussion Papers from University of Konstanz, Center of Finance and Econometrics (CoFE)

Abstract: A nonlinear Black-Scholes equation which models transaction costs arising in the hedging of portfolios is discretized semi-implicitly using high order compact finite difference schemes. In particular, the compact schemes of Rigal are generalized. The numerical results are compared to standard finite difference schemes. It turns out that the compact schemes have very satisfying stability and non-oscillatory properties and are generally more e±cient than the considered classical schemes.

Keywords: Option pricing; transaction costs; parabolic equations; compact finite difference discretizations (search for similar items in EconPapers)
Date: 2001
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Journal Article: High Order Compact Finite Difference Schemes for a Nonlinear Black-Scholes Equation (2003)
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