Comparison of Two Numerical Methods for Computation of American Type of the Floating Strike Asian Option
AbstractWe present a numerical approach for solving the free boundary problem for the Black-Scholes equation for pricing American style of floating strike Asian options. A fixed domain transformation of the free boundary problem into a parabolic equation defined on a fixed spatial domain is performed. As a result a nonlinear time-dependent term is involved in the resulting equation. Two new numerical algorithms are proposed. In the first algorithm a predictor-corrector scheme is used. The second one is based on the Newton method. Computational experiments, confirming the accuracy of the algorithms are presented and discussed.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1106.0020.
Date of creation: May 2011
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Web page: http://arxiv.org/
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- Tomas Bokes & Daniel Sevcovic, 2009. "Early exercise boundary for American type of floating strike Asian option and its numerical approximation," Papers 0912.1321, arXiv.org.
- Tomáš Bokes & Daniel Ševčovič, 2010. "Early Exercise Boundary for American Type of Floating Strike Asian Option and Its Numerical Approximation," Applied Mathematical Finance, Taylor & Francis Journals, vol. 18(5), pages 367-394, November.
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