A More Accurate Finite Difference Approximation for the Valuation of Options

Georges Courtadon

Journal of Financial and Quantitative Analysis, 1982, vol. 17, issue 5, 697-703

Abstract: Schwartz [3] proposed a model to solve for the value of a warrant or an option when a closed-form solution of the valuation equation cannot be obtained. This model is based on a difference approximation of the valuation equation and uses standard numerical methods. We intend to show here that the same methods can be used to derive a difference approximation of the solution of the valuation equation which has a greater level of accuracy than Schwartz's approximation.

Date: 1982
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