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http://dx.doi.org/10.7858/eamj.2019.008

IMEX METHODS FOR PRICING FIXED STRIKE ASIAN OPTIONS WITH JUMP-DIFFUSION MODELS  

Lee, Sunju (Department of Mathematics, Chungnam National University)
Lee, Younhee (Department of Mathematics, Chungnam National University)
Publication Information
East Asian mathematical journal / v.35, no.1, 2019 , pp. 59-66 More about this Journal
Abstract
In this paper we study implicit-explicit (IMEX) methods combined with a semi-Lagrangian scheme to evaluate the prices of fixed strike arithmetic Asian options under jump-diffusion models. An Asian option is described by a two-dimensional partial integro-differential equation (PIDE) that has no diffusion term in the arithmetic average direction. The IMEX methods with the semi-Lagrangian scheme to solve the PIDE are discretized along characteristic curves and performed without any fixed point iteration techniques at each time step. We implement numerical simulations for the prices of a European fixed strike arithmetic Asian put option under the Merton model to demonstrate the second-order convergence rate.
Keywords
Implicit-explicit methods; Semi-Lagrangian scheme; Fixed strike Asian options with jumps; Arithmetic average price;
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