Next Article in Journal
A Result on a Pata-Ćirić Type Contraction at a Point
Previous Article in Journal
Asymptotic Stability of the Solutions of Neutral Linear Fractional System with Nonlinear Perturbation
Open AccessReview

Finite Difference Method for the Multi-Asset Black–Scholes Equations

1
Department of Mathematics, Korea University, Seoul 02841, Korea
2
Department of Mathematics, Kangwon National University, Gangwon-do 24341, Korea
*
Author to whom correspondence should be addressed.
Mathematics 2020, 8(3), 391; https://doi.org/10.3390/math8030391
Received: 13 January 2020 / Revised: 28 February 2020 / Accepted: 6 March 2020 / Published: 10 March 2020
(This article belongs to the Special Issue Open Source Codes for Numerical Analysis)
In this paper, we briefly review the finite difference method (FDM) for the Black–Scholes (BS) equations for pricing derivative securities and provide the MATLAB codes in the Appendix for the one-, two-, and three-dimensional numerical implementation. The BS equation is discretized non-uniformly in space and implicitly in time. The two- and three-dimensional equations are solved using the operator splitting method. In the numerical tests, we show characteristic examples for option pricing. The computational results are in good agreement with the closed-form solutions to the BS equations. View Full-Text
Keywords: operator splitting method; Black–Scholes equations; option pricing; finite difference method operator splitting method; Black–Scholes equations; option pricing; finite difference method
Show Figures

Figure 1

MDPI and ACS Style

Kim, S.; Jeong, D.; Lee, C.; Kim, J. Finite Difference Method for the Multi-Asset Black–Scholes Equations. Mathematics 2020, 8, 391.

Show more citation formats Show less citations formats
Note that from the first issue of 2016, MDPI journals use article numbers instead of page numbers. See further details here.

Article Access Map by Country/Region

1
Back to TopTop