A numerical study of the European option by the MLPG method with moving kriging interpolation
Journal article
Authors/Editors
Strategic Research Themes
No matching items found.
Publication Details
Author list: Phaochoo P., Luadsong A., Aschariyaphotha N.
Publisher: SpringerOpen
Publication year: 2016
Journal: SpringerPlus (2193-1801)
Volume number: 5
Issue number: 1
ISSN: 2193-1801
Languages: English-Great Britain (EN-GB)
View in Web of Science | View on publisher site | View citing articles in Web of Science
Abstract
In this paper, the meshless local Petrov–Galerkin (MLPG) method is applied for solving a generalized Black–Scholes equation in financial problems. This equation is a PDE governing the price evolution of a European call or a European put under the Black–Scholes model. The θ-weighted method and MLPG are used for discretizing the governing equation in time variable and option pricing, respectively. We show that the spectral radius of amplification matrix with the discrete operator is less than 1. This ensures that this numerical scheme is stable. Numerical experiments are performed with time varying volatility and the results are compared with the analytical and the numerical results of other methods. © 2016, Phaochoo et al.
Keywords
Black–Scholes equation, European option
Contact Information