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http://dx.doi.org/10.14317/jami.2013.769

MODULUS-BASED SUCCESSIVE OVERRELAXATION METHOD FOR PRICING AMERICAN OPTIONS  

Zheng, Ning (Department of Mathematics, Tongji University)
Yin, Jun-Feng (Department of Mathematics, Tongji University)
Publication Information
Journal of applied mathematics & informatics / v.31, no.5_6, 2013 , pp. 769-784 More about this Journal
Abstract
We consider the modulus-based successive overrelaxation method for the linear complementarity problems from the discretization of Black-Scholes American options model. The $H_+$-matrix property of the system matrix discretized from American option pricing which guarantees the convergence of the proposed method for the linear complementarity problem is analyzed. Numerical experiments confirm the theoretical analysis, and further show that the modulus-based successive overrelaxation method is superior to the classical projected successive overrelaxation method with optimal parameter.
Keywords
American option; Black-Scholes model; linear complementarity problem; $H_+$-matrix; modulus-based successive overrelaxation; projected successive overrelaxation;
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