Multigrid for American option pricing with stochastic volatility |
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| Authors: | Nigel Clarke Kevin Parrott |
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| Affiliation: | 1. Oxford University Computing Laboratory;2. School of Computing and Mathematical Sciences, University of Greenwich |
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| Abstract: | The paper describes an implicit finite difference approach to the pricing of American options on assets with a stochastic volatility. A multigrid procedure is described for the fast iterative solution of the discrete linear complementarity problems that result. The accuracy and performance of this approach is improved considerably by a strike-price related analytic transformation of asset prices and adaptive time-stepping. |
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| Keywords: | American Option Pricing Stochastic Volatility Finite Difference Method Multigrid Strike-price Related Transformation Adaptive Time-stepping |
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