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Home  >  Volume 32 (Nov. 2015)

A Simple Stochastic Algorithm for Solution to PDE with Financial Application by Bright O. Osu and Okechukwu U. Solomon (pages 125-132)
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Abstract

This paper presents a stochastic algorithm in a drifted financial derivative system for pricing an American options under the Black-Scholes model. With finer discretization, space nodes and time nodes, we demonstrate that the drifted financial derivative system can be efficiently and easily solved with high accuracy, by using a stochastic approximation method which proves to be faster in pricing an American options.  An illustrative example is given in concrete setting.

Keywords: Financial PDE; Stochastic algorithm; Drifted system; Option pricing; Spatial discretization.MSC: 65C05, 65D30, 98B28

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