A Modified Explicit Method for the Black-scholes Equation with Positivity Preserving Property
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Authors
M. Mehdizadeh Khalsaraei
- Faculty of Mathematical Science, University of Maragheh, Maragheh, Iran
R. Shokri Jahandizi
- Faculty of Mathematical Science, University of Maragheh, Maragheh, Iran
Abstract
In this paper, we show that the standard finite difference scheme can generate numerical drawbacks such
as spurious oscillations in the solution of the famous Black-Scholes partial differential equation, in the
presence of discontinuities. We propose a modification of this scheme based on a nonstandard
discretization. The proposed scheme is free of spurious oscillations and satisfies the positivity requirement,
as is demanded for the financial solution of the Black-Scholes equation.
Share and Cite
ISRP Style
M. Mehdizadeh Khalsaraei, R. Shokri Jahandizi, A Modified Explicit Method for the Black-scholes Equation with Positivity Preserving Property, Journal of Mathematics and Computer Science, 15 (2015), no. 4, 287-293
AMA Style
Khalsaraei M. Mehdizadeh, Jahandizi R. Shokri, A Modified Explicit Method for the Black-scholes Equation with Positivity Preserving Property. J Math Comput SCI-JM. (2015); 15(4):287-293
Chicago/Turabian Style
Khalsaraei, M. Mehdizadeh, Jahandizi, R. Shokri. "A Modified Explicit Method for the Black-scholes Equation with Positivity Preserving Property." Journal of Mathematics and Computer Science, 15, no. 4 (2015): 287-293
Keywords
- Black-Scholes equation
- Nonstandard finite differences
- Positivity preserving
- Stability.
MSC
References
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