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  • 한국과학기술정보연구원(KISTI) 서울분원 대회의실(별관 3층)
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ISSN : 1226-0657

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Vol.27 No.4

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AN EFFICIENT AND ROBUST NUMERICAL METHOD FOR OPTION PRICES IN A TWO-ASSET JUMP-DIFFUSION MODEL

AN EFFICIENT AND ROBUST NUMERICAL METHOD FOR OPTION PRICES IN A TWO-ASSET JUMP-DIFFUSION MODEL

한국수학교육학회지시리즈B:순수및응용수학 / Journal of the Korean Society of Mathematical Education Series B: The Pure and Applied Mathematics, (P)1226-0657; (E)2287-6081
2020, v.27 no.4, pp.231-249
https://doi.org/https://doi.org/10.7468/jksmeb.2020.27.4.231
Lee, Chaeyoung (Department of Mathematics, Korea University)
Wang, Jian (Department of Mathematics, Korea University)
Jang, Hanbyeol (Department of Financial Engineering, Korea University)
Han, Hyunsoo (Department of Financial Engineering, Korea University)
Lee, Seongjin (Department of Financial Engineering, Korea University)
Lee, Wonjin (Department of Financial Engineering, Korea University)
Yang, Kisung (School of Finance, College of Business Administration)
Kim, Junseok (Department of Mathematics, Korea University)
Lee, Chaeyoung, Wang, Jian, Jang, Hanbyeol, Han, Hyunsoo, Lee, Seongjin, Lee, Wonjin, Yang, Kisung, & Kim, Junseok. (2020). AN EFFICIENT AND ROBUST NUMERICAL METHOD FOR OPTION PRICES IN A TWO-ASSET JUMP-DIFFUSION MODEL. 한국수학교육학회지시리즈B:순수및응용수학, 27(4), 231-249, https://doi.org/https://doi.org/10.7468/jksmeb.2020.27.4.231

Abstract

We present an efficient and robust finite difference method for a two-asset jump diffusion model, which is a partial integro-differential equation (PIDE). To speed up a computational time, we compute a matrix so that we can calculate the non-local integral term fast by a simple matrix-vector operation. In addition, we use bilinear interpolation to solve integral term of PIDE. We can obtain more stable value by using the payoff-consistent extrapolation. We provide numerical experiments to demonstrate a performance of the proposed numerical method. The numerical results show the robustness and accuracy of the proposed method.

keywords
jump-diffusion, Simpson's rule, non-uniform grid, implicit finite difference method, derivative securities

한국수학교육학회지시리즈B:순수및응용수학

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