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Pricing Financial Instruments: The Finite Difference Method
Curt Randall,Domingo Tavella +1 more
TLDR
The Pricing Equations. as mentioned in this paper and the Finite-difference method are the most commonly used methods for finite difference methods in the literature, and they can be found in:Abstract:
The Pricing Equations. Analysis of Finite Difference Methods. Special Issues. Coordinate Transformations. Numerical Examples. Index.read more
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Journal Article
On coordinate transformation and grid stretching for sparse grid pricing of basket options
TL;DR: Two coordinate transformation techniques in combination with a coordinate stretching for pricing basket options in a sparse grid setting are evaluated for multi-asset examples with up to five underlying assets in the basket.
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On the Numerical Evaluation of Option Prices in Jump Diffusion Processes
Peter Carr,Anita Mayo +1 more
TL;DR: In this paper, the fair price of a financial option on an asset that follows a Poisson jump diffusion process satisfies a partial integro-differential equation is investigated. But the authors present a different and more efficient class of methods which are based on the fact that the integrals often satisfy differential equations.
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Multi-asset option pricing using a parallel Fourier-based technique
TL;DR: In this paper, a Fourier-based sparse grid method for pricing multi-asset options is presented and evaluated by solving pricing equations for options dependent on up to seven underlying assets.
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Error analysis of finite difference and Markov chain approximations for option pricing
Lingfei Li,Gongqiu Zhang +1 more
TL;DR: In this paper, the convergence rate for the transition density and the price of options with nonsmooth payoffs was established for general one-dimensional diffusion models, which play a fundamental role in financial applications.
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Negative coefficients in two-factor option pricing models
TL;DR: In this article, the importance of positive coefficients in numerical schemes is explored in detail in the particular context of two factor models, in which several two factor lattice type methods are derived using a finite difference/finite element methodology.