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

  • J. D. Kandilarov
  • D. Ševčovič
Part of the Lecture Notes in Computer Science book series (LNCS, volume 7116)

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.

Keywords

Free Boundary Newton Method Free Boundary Problem Asian Option Convergence Ratio 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer-Verlag Berlin Heidelberg 2012

Authors and Affiliations

  • J. D. Kandilarov
    • 1
  • D. Ševčovič
    • 2
  1. 1.Department of MathematicsUniversity of RousseRousseBulgaria
  2. 2.Department of Applied Mathematics and StatisticsComenius UniversityBratislavaSlovak Republic

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