Tradable Schemes

Jiri Hoogland and Dimitri Neumann
Additional contact information
Jiri Hoogland: CWI
Dimitri Neumann: CWI

Papers from arXiv.org

Abstract: In this article we present a new approach to the numerical valuation of derivative securities. The method is based on our previous work where we formulated the theory of pricing in terms of tradables. The basic idea is to fit a finite difference scheme to exact solutions of the pricing PDE. This can be done in a very elegant way, due to the fact that in our tradable based formulation there appear no drift terms in the PDE. We construct a mixed scheme based on this idea and apply it to price various types of arithmetic Asian options, as well as plain vanilla options (both european and american style) on stocks paying known cash dividends. We find prices which are accurate to $\sim 0.1%$ in about 10ms on a Pentium 233MHz computer and to $\sim 0.001%$ in a second. The scheme can also be used for market conform pricing, by fitting it to observed option prices.

Date: 2000-09
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/cond-mat/0009042 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:cond-mat/0009042

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().