A Fast Method for Pricing Early-Exercise Options with the FFT
ICCS '07 Proceedings of the 7th international conference on Computational Science, Part II
Difference-Quadrature Schemes for Nonlinear Degenerate Parabolic Integro-PDE
SIAM Journal on Numerical Analysis
Methods for Pricing American Options under Regime Switching
SIAM Journal on Scientific Computing
Journal of Computational and Applied Mathematics
Journal of Scientific Computing
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A finite-difference method for integro-differential equations arising from Le´vy driven asset processes in finance is discussed. The equations are discretized in space by the collocation method and in time by an explicit backward differentiation formula. The discretization is shown to be second-order accurate for a relevant parameter range determining the degree of the singularity in the Le´vy measure. The singularity is dealt with by means of an integration by parts technique. An application of the fast Fourier transform gives the overall amount of work $O(N_t N\log N)$, rendering the method fast.