A Synthesis of finite difference methods and the jump process arising in the pricing of Contingent Claim

Authors

Presenter(s)

Dan Zhang

Files

Description

It is demonstrated that approximation of the solution of the Black-Scholes partial differential equation by using a finite difference method is equivalent to approximating the diffusion process by a jump process and therefore the finite difference approximation is a type of numerical integration. In particular, we establish that the explicit finite difference approximation is equivalent to approximating to diffusion process by a jump process, initially introduced by Cox and Ross, while the implicit finite difference approximation amounts to approximating the diffusion process by a more general type of jump process. This work has been introduced by Brennan and Schwartz, The Journal of Financial and Quantitative Analysis, [13] (1978).

Publication Date

4-18-2012

Project Designation

Graduate Research

Primary Advisor

Paul W. Eloe

Primary Advisor's Department

Mathematics

Keywords

Stander Symposium project

Recommended Citation

"A Synthesis of finite difference methods and the jump process arising in the pricing of Contingent Claim" (2012). Stander Symposium Projects. 189.
https://ecommons.udayton.edu/stander_posters/189