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Finite-Volume Difference Scheme for the Black-Scholes Equation in Stochastic Volatility Models

  • Tatiana Chernogorova
  • Radoslav Valkov
Part of the Lecture Notes in Computer Science book series (LNCS, volume 6046)

Abstract

We study numerically the two-dimensional Black-Scholes equation in stochastic volatility models [3]. For these models, starting from the conservative form of the equation, we construct a finite-volume difference scheme using the appropriate boundary conditions. The scheme is first order accurate in the space grid size. We also present some results from numerical experiments that confirm this.

Keywords

Black-Scholes equation dynamical boundary condition finite difference finite-volume 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2011

Authors and Affiliations

  • Tatiana Chernogorova
    • 1
  • Radoslav Valkov
    • 1
  1. 1.Faculty of Mathematics and InformaticsSofia UniversityBulgaria

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