Numerical methods for ordinary differential systems: the initial value problem
Numerical methods for ordinary differential systems: the initial value problem
On the parallel solution of parabolic equations
ICS '89 Proceedings of the 3rd international conference on Supercomputing
On smoothing of the Crank-Nicolson scheme and higher order schemes for pricing barrier options
Journal of Computational and Applied Mathematics
The evaluation of barrier option prices under stochastic volatility
Computers & Mathematics with Applications
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A discontinuity is introduced each time a barrier is applied, and standard smoothing schemes do not work well when used to solve problems with non-smooth payoff. An improved smoothing strategy was introduced in [M. Yousuf, Efficient Smoothing of Crank-Nicolson Method for Pricing Barrier Options Under Stochastic Volatility, Published Online: Jul 10, 2008, DOI: 10.1002/pamm.200700249, 1081101-1081102.] for smoothing A-stable Cranck-Nicolson scheme at each time a barrier is applied. In the present work, we are extending the results to develop a fourth order smoothing scheme for pricing barrier options under stochastic volatility. Partial differential equation approach is utilized for the valuation of complex option pricing models under stochastic volatility which brings major mathematical and computational challenges for estimation of stability of the estimates. Efficient parallel version of the scheme is constructed using splitting technique. Convergence table and graphs are given to demonstrate the performance of the smoothing scheme.