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Comparison of Two Numerical Methods for Computation of American Type of the Floating Strike Asian Option


  • J. D. Kandilarov
  • D. Sevcovic


We 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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  • J. D. Kandilarov & D. Sevcovic, 2011. "Comparison of Two Numerical Methods for Computation of American Type of the Floating Strike Asian Option," Papers 1106.0020,
  • Handle: RePEc:arx:papers:1106.0020

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    1. 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.
    2. Tomas Bokes & Daniel Sevcovic, 2009. "Early exercise boundary for American type of floating strike Asian option and its numerical approximation," Papers 0912.1321,
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