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An Alternating-Direction Implicit Difference Scheme for Pricing Asian Options

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  • Zhongdi Cen
  • Anbo Le
  • Aimin Xu

Abstract

We propose a fast and stable numerical method to evaluate two-dimensional partial differential equation (PDE) for pricing arithmetic average Asian options. The numerical method is deduced by combining an alternating-direction technique and the central difference scheme on a piecewise uniform mesh. The numerical scheme is stable in the maximum norm, which is true for arbitrary volatility and arbitrary interest rate. It is proved that the scheme is second-order convergent with respect to the asset price. Numerical results support the theoretical results.

Suggested Citation

  • Zhongdi Cen & Anbo Le & Aimin Xu, 2013. "An Alternating-Direction Implicit Difference Scheme for Pricing Asian Options," Journal of Applied Mathematics, Hindawi, vol. 2013, pages 1-8, June.
    • Handle: RePEc:hin:jnljam:605943
    DOI: 10.1155/2013/605943
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