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An Efficient Method for Solving Spread Option Pricing Problem: Numerical Analysis and Computing

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  • R. Company
  • V. N. Egorova
  • L. Jódar

Abstract

This paper deals with numerical analysis and computing of spread option pricing problem described by a two‐spatial variables partial differential equation. Both European and American cases are treated. Taking advantage of a cross derivative removing technique, an explicit difference scheme is developed retaining the benefits of the one‐dimensional finite difference method, preserving positivity, accuracy, and computational time efficiency. Numerical results illustrate the interest of the approach.

Suggested Citation

  • R. Company & V. N. Egorova & L. Jódar, 2016. "An Efficient Method for Solving Spread Option Pricing Problem: Numerical Analysis and Computing," Abstract and Applied Analysis, John Wiley & Sons, vol. 2016(1).
    • Handle: RePEc:wly:jnlaaa:v:2016:y:2016:i:1:n:1549492
    DOI: 10.1155/2016/1549492
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    References listed on IDEAS

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    1. Jing-Zhi Huang & Marti G. Subrahmanyam & G. George Yu, 1999. "Pricing And Hedging American Options: A Recursive Integration Method," World Scientific Book Chapters, in: Marco Avellaneda (ed.), Quantitative Analysis In Financial Markets Collected Papers of the New York University Mathematical Finance Seminar, chapter 8, pages 219-239, World Scientific Publishing Co. Pte. Ltd..
    2. R. Company & L. Jódar & M. Fakharany & M.-C. Casabán, 2013. "Removing the Correlation Term in Option Pricing Heston Model: Numerical Analysis and Computing," Abstract and Applied Analysis, Hindawi, vol. 2013, pages 1-11, June.
    3. R. Company & L. Jódar & M. Fakharany & M.-C. Casabán, 2013. "Removing the Correlation Term in Option Pricing Heston Model: Numerical Analysis and Computing," Abstract and Applied Analysis, John Wiley & Sons, vol. 2013(1).
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