Efficient Semi-Discretization Techniques for Pricing European and American Basket Options

Fazlollah Soleymani ()
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Fazlollah Soleymani: Institute for Advanced Studies in Basic Sciences

Computational Economics, 2019, vol. 53, issue 4, No 11, 1487-1508

Abstract: Abstract This paper studies the valuation of option pricing problem in the presence of several assets. European- and American-style options are dealt with using high order semi-discretization techniques. We integrate the resulting system of semi-discretized ODEs in time with several time-stepping schemes such as explicit Euler method, explicit Runge–Kutta method, and the Runge–Kutta method with adaptive variable step sizes. Numerical results demonstrate that employing higher order semi-discretizations improves the computational performance of the multi-asset option pricing problems.

Keywords: Option pricing; American option; European option; Payoff function; Multi-asset basket; 91B25; 65N06 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s10614-018-9819-4

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