TR-BDF2 for Stable American Option Pricing

Posted: 26 Jul 2010 Last revised: 3 Dec 2013

Fabien Le Floc'h

Calypso Technology; Independent

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

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

Fabien Le Floc'h (Contact Author)

Calypso Technology ( email )

106 rue de la Boetie
Paris, 75008
France

Independent ( email )

France

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