A numerical method for European Option Pricing with transaction costs nonlinear equation

Authors:
Rafael Company;Lucas JóDar;José-RamóN Pintos
Affiliations:
Instituto de Matemática Multidisciplinar, Universidad Politécnica de Valencia, Camino de Vera s/n, 46022 Valencia, Espagne;Instituto de Matemática Multidisciplinar, Universidad Politécnica de Valencia, Camino de Vera s/n, 46022 Valencia, Espagne;Instituto de Matemática Multidisciplinar, Universidad Politécnica de Valencia, Camino de Vera s/n, 46022 Valencia, Espagne
Venue:
Mathematical and Computer Modelling: An International Journal
Year:
2009

Citing 3
Cited 2

Finite difference schemes and partial differential equations

Finite difference schemes and partial differential equations
Numerical solution of linear and nonlinear Black-Scholes option pricing equations

Computers & Mathematics with Applications
An efficient method for option pricing with discrete dividend payment

Computers & Mathematics with Applications

Numerical analysis and computing for option pricing models in illiquid markets

Mathematical and Computer Modelling: An International Journal
A consistent stable numerical scheme for a nonlinear option pricing model in illiquid markets

Mathematics and Computers in Simulation

Quantified Score

Hi-index	0.98

Visualization

Abstract

This paper deals with the construction of a finite difference scheme and the numerical analysis of its solution for a nonlinear Black-Scholes partial differential equation modelling stock option pricing in the realistic case when transaction costs arising in the hedging of portfolios are taken into account. The analysed model is the Barles-Soner one for which an appropriate fully nonlinear numerical method has not still applied. After construction of the numerical solution, consistency and stability are studied and some illustrative examples are included.