High-order compact schemes for Black-Scholes basket options

2015/05/28 by Düring, Bertram, Heuer, Christof
#Computational Finance (q-fin.CP) #FOS: Economics and business #FOS: Mathematics #Numerical Analysis (math.NA)

paper · doi:10.48550/arxiv.1505.07613

Abstract

We present a new high-order compact scheme for the multi-dimensional Black-Scholes model with application to European Put options on a basket of two underlying assets. The scheme is second-order accurate in time and fourth-order accurate in space. Numerical examples confirm that a standard second-order finite difference scheme is significantly outperformed.

Related

• High order finite difference schemes on non-uniform meshes for the time-fractional Black-Scholes equation
• A Note on the Pricing of Basket Options Using Taylor Approximations
• Essentially high-order compact schemes with application to stochastic volatility models on non-uniform grids
• Boundary conditions at infinity for Black-Scholes equations
• High-order compact finite difference scheme for option pricing in stochastic volatility with contemporaneous jump models