TR-BDF2 for Stable American Option Pricing
Posted: 26 Jul 2010 Last revised: 3 Dec 2013
Date Written: June 16, 2010
Abstract
The Trapezoidal Rule with Second Order Backward Difference Formula (TR-BDF2) finite difference scheme is applied to the Black-Scholes-Merton PDE on a non uniform grid. American Option Convergence and Greeks stability is studied against studied against popular alternatives, namely Crank-Nicolson and Rannacher time-marching.
Keywords: Finite Difference, American, Option, Finance, Pricing, trbdf2, TR-BDF2, Rannacher
JEL Classification: G12, G10
Suggested Citation: Suggested Citation
Le Floc'h, Fabien, TR-BDF2 for Stable American Option Pricing (June 16, 2010). Available at SSRN: https://ssrn.com/abstract=1648878 or http://dx.doi.org/10.2139/ssrn.1648878
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