dc.contributor.author Li, W. dc.contributor.author Wang, Song dc.date.accessioned 2017-08-24T02:22:15Z dc.date.available 2017-08-24T02:22:15Z dc.date.created 2017-08-23T07:21:41Z dc.date.issued 2017 dc.identifier.citation Li, W. and Wang, S. 2017. Pricing European options with proportional transaction costs and stochastic volatility using a penalty approach and a finite volume scheme. Computers and Mathematics with Applications. 73 (11): pp. 2454-2469. dc.identifier.uri http://hdl.handle.net/20.500.11937/56074 dc.identifier.doi 10.1016/j.camwa.2017.03.024 dc.description.abstract © 2017 Elsevier Ltd In this paper we propose a combination of a penalty method and a finite volume scheme for a four-dimensional time-dependent Hamilton–Jacobi–Bellman (HJB) equation arising from pricing European options with proportional transaction costs and stochastic volatility. The HJB equation is first approximated by a nonlinear partial differential equation containing penalty terms. A finite volume method along with an upwind technique is then developed for the spatial discretization of the nonlinear penalty equation. We show that the coefficient matrix of the discretized system is an M-matrix. An iterative method is proposed for solving the nonlinear algebraic system and a convergence theory is established for the iterative method. Numerical experiments are performed using a non-trivial model pricing problem and the numerical results demonstrate the usefulness of the proposed method. dc.publisher Pergamon Press dc.title Pricing European options with proportional transaction costs and stochastic volatility using a penalty approach and a finite volume scheme dc.type Journal Article dcterms.source.volume 73 dcterms.source.number 11 dcterms.source.startPage 2454 dcterms.source.endPage 2469 dcterms.source.issn 0898-1221 dcterms.source.title Computers and Mathematics with Applications curtin.department Department of Mathematics and Statistics curtin.accessStatus Fulltext not available
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