Hopscotch Methods for Two State Financial Models
Posted: 21 Nov 2007
In this paper, we consider Hopscotch methods for solving two - state financial models. We first derive a solution algorithm for two - dimensional partial differential equations with mixed boundary conditions. We then consider a number of financial applications including stochastic volatility option pricing, term structure modelling with two states and elliptic irreversible investment problems.
Keywords: Two-dimensional PDE, Hopscotch method, parabolic financial models, elliptic problems
JEL Classification: G00
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