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

See all articles by Gianluca Fusai

Gianluca Fusai

Università del Piemonte Orientale Dipartimento di Studi per l'Economia e l'Impresa; Sir John Cass Business School - City, University of London

Simona Sanfelici

University of Parma - Dipartimento di Economia

Aldo Tagliani

University of Trento - Department of Economics and Management

Date Written: 2002

Abstract

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

Fusai, Gianluca and Sanfelici, Simona and Tagliani, Aldo, Practical Problems in the Numerical Solution of PDE's in Finance (2002). Rendiconti per gli Studi Economici Quantitativi, Università Ca’ Foscari Venezia, Vol. 2001 (2002), 105-132.. Available at SSRN: https://ssrn.com/abstract=2240864

Gianluca Fusai

Università del Piemonte Orientale Dipartimento di Studi per l'Economia e l'Impresa ( email )

Via Perrone, 18
Novara, 28100
Italy

HOME PAGE: http://https://upobook.uniupo.it/gianluca.fusai

Sir John Cass Business School - City, University of London ( email )

106 Bunhill Row
London, EC2Y 8HB
Great Britain

HOME PAGE: http:// www.cass.city.ac.uk/experts/G.Fusai

Simona Sanfelici (Contact Author)

University of Parma - Dipartimento di Economia ( email )

Via Kennedy 6
Parma, Parma 43100
Italy

Aldo Tagliani

University of Trento - Department of Economics and Management

Via Inama 5
Trento, I-38100
Italy

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