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A family of positive nonstandard numerical methods with application to Black-Scholes equation

Journal: Sahand Communications in Mathematical Analysis (Vol.5, No. 1)

Publication Date:

Authors : ; ;

Page : 31-40

Keywords : Black-Scholes equation; Option pricing; Finite difference scheme; Positivity-preserving;

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Abstract

Nonstandard finite difference schemes for the Black-Scholes partial differential equation preserving the positivity property are proposed. Computationally simple schemes are derived by using a nonlocal approximation in the reaction term of the Black-Scholes equation. Unlike the standard methods, the solutions of new proposed schemes are positive and free of the spurious oscillations.

Last modified: 2017-07-24 14:25:23