High Order Approximation of Derivatives With Applications To Pricing of Financial Derivatives
Document Type
Article
Publication Date
5-27-2021
Publication Title
Journal of Computational and Applied Mathematics
Volume
398
First page number:
1
Last page number:
12
Abstract
In this paper, we first compare three different methods for approximating the first and second derivatives from function values given at scattered points. Then we propose to use the most accurate derivative approximation method in a forward Euler scheme to solve the general Black–Scholes equation. We prove the scheme's stability and error estimate. Many numerical examples applying to pricing of financial derivatives are presented to demonstrate the efficiency and accuracy of our scheme.
Keywords
Black–Scholes equation; High-order compact finite difference method; Option pricing models; Radial basis function
Disciplines
Applied Mathematics
Language
English
Repository Citation
Wang, X.,
Li, J.,
Li, J.
(2021).
High Order Approximation of Derivatives With Applications To Pricing of Financial Derivatives.
Journal of Computational and Applied Mathematics, 398
1-12.
http://dx.doi.org/10.1016/j.cam.2021.113675