Application of radial basis function with L-stable Padé time marching scheme for pricing exotic option

Authors:
Mohan K. Kadalbajoo;Alpesh Kumar;Lok Pati Tripathi
Affiliations:
-;-;-
Venue:
Computers & Mathematics with Applications
Year:
2013

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Abstract

In this work a high order L-stable method for pricing exotic option has been discussed. The spatial discretization is done by radial basis function based local grid free method to achieve first order ordinary differential equation followed by fourth order L-stable method. Numerical study with one and two asset problems for digital option, butterfly spread and barrier option is carried out with highly accurate results that are in good agreement with those obtained by other numerical methods in the literature.