Comparison of Two Numerical Methods for Computation of American Type of the Floating Strike Asian Option

J. D. Kandilarov and D. Sevcovic

Papers from arXiv.org

Abstract: We present a numerical approach for solving the free boundary problem for the Black-Scholes equation for pricing American style of floating strike Asian options. A fixed domain transformation of the free boundary problem into a parabolic equation defined on a fixed spatial domain is performed. As a result a nonlinear time-dependent term is involved in the resulting equation. Two new numerical algorithms are proposed. In the first algorithm a predictor-corrector scheme is used. The second one is based on the Newton method. Computational experiments, confirming the accuracy of the algorithms are presented and discussed.

Date: 2011-05
New Economics Papers: this item is included in nep-cmp
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/1106.0020 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:1106.0020

Access Statistics for this paper

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