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

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Large-Scale Scientific Computing (LSSC 2011)

Part of the book series: Lecture Notes in Computer Science ((LNTCS,volume 7116))

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Abstract

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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Author information

Authors and Affiliations

  1. Department of Mathematics, University of Rousse, Studentska Str. 8, Rousse, 7017, Bulgaria

    J. D. Kandilarov

  2. Department of Applied Mathematics and Statistics, Comenius University, 842 48, Bratislava, Slovak Republic

    D. Ševčovič

Authors
  1. J. D. Kandilarov
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  2. D. Ševčovič
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Editor information

Editors and Affiliations

  1. Institute of Information and Communication Technologies, Bulgarian Academy of Sciences, Acad. G. Bonchev, Block 25A, 1113, Sofia, Bulgaria

    Ivan Lirkov  & Svetozar Margenov  & 

  2. Department of Informatics and Mathematical Modelling, Technical University of Denmark, Richard Petersens Plads, Building 321,, 2800, Kongens Lyngby, Denmark

    Jerzy Waśniewski

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Kandilarov, J.D., Ševčovič, D. (2012). Comparison of Two Numerical Methods for Computation of American Type of the Floating Strike Asian Option. In: Lirkov, I., Margenov, S., Waśniewski, J. (eds) Large-Scale Scientific Computing. LSSC 2011. Lecture Notes in Computer Science, vol 7116. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-29843-1_63

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  • DOI: https://doi.org/10.1007/978-3-642-29843-1_63

  • Publisher Name: Springer, Berlin, Heidelberg

  • Print ISBN: 978-3-642-29842-4

  • Online ISBN: 978-3-642-29843-1

  • eBook Packages: Computer ScienceComputer Science (R0)

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