Convergence of a high-order compact finite difference scheme for a nonlinear Black-Scholes equation
AbstractA high-order compact finite difference scheme for a fully nonlinear parabolic differential equation is analyzed. The equation arises in the modeling of option prices in financial markets with transaction costs. It is shown that the finite difference solution converges locally uniformly to the unique viscosity solution of the continuous equation. The proof is based on a careful study of the discretization matrices and on an abstract convergence result due to Barles and Souganides.
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Bibliographic InfoPaper provided by Center of Finance and Econometrics, University of Konstanz in its series CoFE Discussion Paper with number 04-02.
Length: 16 pages
Date of creation: Jan 2004
Date of revision:
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