A Fitted Multi-point Flux Approximation Method for Pricing Two Options

Rock Stephane Koffi () and Antoine Tambue ()
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Rock Stephane Koffi: The African Institute for Mathematical Sciences(AIMS)
Antoine Tambue: Western Norway University of Applied Sciences

Computational Economics, 2020, vol. 55, issue 2, No 10, 597-628

Abstract: Abstract In this paper, we develop novel numerical methods based on the multi-point flux approximation (MPFA) method to solve the degenerated partial differential equation (PDE) arising from pricing two-assets options. The standard MPFA is used as our first method and is coupled with a fitted finite volume in our second method to handle the degeneracy of the PDE and the corresponding scheme is called fitted MPFA method. The convection part is discretized using the upwinding methods (first and second order) that we have derived on non uniform grids. The time discretization is performed with $$\theta $$θ-Euler methods. Numerical simulations show that our new schemes can be more accurate than the current fitted finite volume method proposed in the literature.

Keywords: Finite volume methods; Multi-point flux approximation; Degenerated PDEs; Options pricing; Multi-asset options (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s10614-019-09906-x

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