An Alternating-Direction Implicit Difference Scheme for Pricing Asian Options

Zhongdi Cen, Anbo Le and Aimin Xu

Journal of Applied Mathematics, 2013, vol. 2013, 1-8

Abstract:

We propose a fast and stable numerical method to evaluate two-dimensional partial differential equation (PDE) for pricing arithmetic average Asian options. The numerical method is deduced by combining an alternating-direction technique and the central difference scheme on a piecewise uniform mesh. The numerical scheme is stable in the maximum norm, which is true for arbitrary volatility and arbitrary interest rate. It is proved that the scheme is second-order convergent with respect to the asset price. Numerical results support the theoretical results.

Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:hin:jnljam:605943

DOI: 10.1155/2013/605943

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