Asset pricing for an affine jump‐diffusion model using an FD method of lines on nonuniform meshes |
| |
Authors: | Fazlollah Soleymani,Ali Akgü l |
| |
Abstract: | We present a novel numerical scheme for the valuation of options under a well‐known jump‐diffusion model. European option pricing for such a case satisfies a 1 + 2 partial integro‐differential equation (PIDE) including a double integral term, which is nonlocal. The proposed approach relies on nonuniform meshes with a focus on the discontinuous and degenerate areas of the model and applying quadratically convergent finite difference (FD) discretizations via the method of lines (MOL). A condition for observing the time stability of the fully discretized problem is given. Also, we report results of numerical experiments. |
| |
Keywords: | asset pricing computational methods double integral FD method jump diffusion |
|