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    A computational scheme for uncertain volatility model in option pricing

    Access Status
    Fulltext not available
    Authors
    Zhang, K.
    Wang, Song
    Date
    2009
    Type
    Journal Article
    
    Metadata
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    Citation
    Zhang, K. and Wang, S. 2009. A computational scheme for uncertain volatility model in option pricing. Applied Numerical Mathematics. 59 (8): pp. 1754-1767.
    Source Title
    Applied Numerical Mathematics
    DOI
    10.1016/j.apnum.2009.01.004
    ISSN
    0168-9274
    School
    Department of Mathematics and Statistics
    URI
    http://hdl.handle.net/20.500.11937/9467
    Collection
    • Curtin Research Publications
    Abstract

    In this paper we develop a novel numerical scheme for a nonlinear partial differential equation arising from the uncertain volatility model in option pricing. The fitted finite volume method is developed for the space discretization with implicit scheme in time discretization, which results in a nonlinear discrete system. We prove that this method is consistent, stable and monotone, hence it ensures the convergence to the viscosity solution. We also propose an iteration scheme for the nonlinear discrete scheme and show its convergence property. Numerical experiments are implemented to verify the efficiency and usefulness of this method. © 2009 IMACS.

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