Practical Problems in the Numerical Solution of PDE's in Finance
Rendiconti per gli Studi Economici Quantitativi, Università Ca’ Foscari Venezia, Vol. 2001 (2002), 105-132.
25 Pages Posted: 30 Mar 2013 Last revised: 2 Apr 2013
Date Written: 2002
In this paper we investigate the use of finite difference and finite element schemes when applied to the valuation of exotic options characterized by discontinuities in the payoff function. In particular, we will conduct a numerical analysis of several common schemes in order to give a better understanding of the numerical problems associated with the valuation of non-standard options.
Keywords: Numerical Solution of PDE, Finite Difference, Finite Elements, Black-Scholes model, Discontinuous Payoff
JEL Classification: C0, C6
Suggested Citation: Suggested Citation