In this paper, we present an MATLAB version of a finite difference scheme for the numerical solution of the American option valuation problem. Our main contribute is the definition of a posteriori error estimator for the American options pricing which is based on Richardson's extrapolation theory. This error estimator allows us to find a suitable grid where the computed solution, both the option price field variable and the free boundary position, verify a prefixed error tolerance.
A Posteriori Error Estimator for a Front-Fixing Finite Difference Scheme for American Options
Fazio, RPrimo
2015-01-01
Abstract
In this paper, we present an MATLAB version of a finite difference scheme for the numerical solution of the American option valuation problem. Our main contribute is the definition of a posteriori error estimator for the American options pricing which is based on Richardson's extrapolation theory. This error estimator allows us to find a suitable grid where the computed solution, both the option price field variable and the free boundary position, verify a prefixed error tolerance.File in questo prodotto:
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