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A Fitted Multi-point Flux Approximation Method for Pricing Two Options

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Abstract

In this paper, we develop novel numerical methods based on the multi-point flux approximation (MPFA) method to solve the degenerated partial differential equation (PDE) arising from pricing two-assets options. The standard MPFA is used as our first method and is coupled with a fitted finite volume in our second method to handle the degeneracy of the PDE and the corresponding scheme is called fitted MPFA method. The convection part is discretized using the upwinding methods (first and second order) that we have derived on non uniform grids. The time discretization is performed with \(\theta \)-Euler methods. Numerical simulations show that our new schemes can be more accurate than the current fitted finite volume method proposed in the literature.

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Notes

  1. center of the control volume \(\mathcal {C}_{i,j}\).

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Acknowledgements

This work was supported by the Robert Bosch Stiftung through the AIMS ARETE Chair programme (Grant No 11.5.8040.0033.0).

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Authors and Affiliations

  1. Western Norway University of Applied Sciences, Inndalsveien 28, 5063, Bergen, Norway

    Antoine Tambue

  2. The African Institute for Mathematical Sciences(AIMS), 6-8 Melrose Road, Muizenberg, 7945, South Africa

    Rock Stephane Koffi & Antoine Tambue

  3. Center for Research in Computational and Applied Mechanics (CERECAM), University of Cape Town, Rondebosch, 7701, South Africa

    Antoine Tambue

  4. Department of Mathematics and Applied Mathematics, University of Cape Town, Rondebosch, 7701, South Africa

    Rock Stephane Koffi & Antoine Tambue

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  1. Rock Stephane Koffi
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  2. Antoine Tambue
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Correspondence to Antoine Tambue.

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Koffi, R.S., Tambue, A. A Fitted Multi-point Flux Approximation Method for Pricing Two Options. Comput Econ 55, 597–628 (2020). https://doi.org/10.1007/s10614-019-09906-x

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