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Finite difference methods are simplest and oldest methods among all the numerical techniques to approximate the solution of partial differential equations (PDEs). The derivatives in the partial differential equation are approximated by finite difference formulas. The error between the numerical solution and the exact solution is determined by the error between a diﬀerential operator to a diﬀerence operator. This error is called the discretization error or truncation error. The term truncation error reﬂects the fact that a ﬁnite part of a Taylor series is used in the approximation. In this work we will analyze the truncation error for a finite difference scheme for the Black Scholes PDE for the valuation of an option.
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Kondowe, Lawrence M., "Truncation Error for a Finite Difference Scheme for the Black-Scholes Model" (2014). Stander Symposium Posters. 540.
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