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http://dx.doi.org/10.7468/jksmeb.2015.22.2.159

A FAST AND ROBUST NUMERICAL METHOD FOR OPTION PRICES AND GREEKS IN A JUMP-DIFFUSION MODEL  

JEONG, DARAE (Department of Mathematics, Korea University)
KIM, YOUNG ROCK (Major in Mathematics Education, Hankuk University of Foreign Studies)
LEE, SEUNGGYU (Department of Mathematics, Korea University)
CHOI, YONGHO (Department of Mathematics, Korea University)
LEE, WOONG-KI (Business School, Korea University)
SHIN, JAE-MAN (Department of Financial Engineering, Korea University)
AN, HYO-RIM (Department of Financial Engineering, Korea University)
HWANG, HYEONGSEOK (Department of Financial Engineering, Korea University)
KIM, HJUNSEOK (Department of Mathematics, Korea University)
Publication Information
The Pure and Applied Mathematics / v.22, no.2, 2015 , pp. 159-168 More about this Journal
Abstract
Abstract. We propose a fast and robust finite difference method for Merton's jump diffusion model, which is a partial integro-differential equation. To speed up a computational time, we compute a matrix so that we can calculate the non-local integral term fast by a simple matrix-vector operation. Also, we use non-uniform grids to increase efficiency. We present numerical experiments such as evaluation of the option prices and Greeks to demonstrate a performance of the proposed numerical method. The computational results are in good agreements with the exact solutions of the jump-diffusion model.
Keywords
jump-diffusion; Simpson's rule; non-uniform grid; implicit finite difference method; derivative securities.;
Citations & Related Records
Times Cited By KSCI : 1  (Citation Analysis)
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