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Numerical Solution of the American Option Pricing by the Penalty Method
Halmstad University, School of Information Science, Computer and Electrical Engineering (IDE).
Halmstad University, School of Information Science, Computer and Electrical Engineering (IDE).
2012 (English)Independent thesis Advanced level (degree of Master (One Year)), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

The American option pricing problem can be described mathematically bythe well-known Black-Scholes equation with a free boundary. It is difficult to solvethis problem since the free boundary is unknown.To accomplish that, we make use of the Implicit Finite-difference Method and Penalty Method which means to add a continuous penalty term with a small parameter 2 into the Black-Scholes equation,to transform the original free boundary problem into a nonlinear partial differential equation with a fixed boundary.

Place, publisher, year, edition, pages
2012. , 21 p.
Keyword [en]
Numerical, Option, Penalty
National Category
Engineering and Technology
Identifiers
URN: urn:nbn:se:hh:diva-19908Local ID: IDE1261OAI: oai:DiVA.org:hh-19908DiVA: diva2:564463
Uppsok
Physics, Chemistry, Mathematics
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Available from: 2012-11-13 Created: 2012-11-01 Last updated: 2012-11-13Bibliographically approved

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CiteExportLink to record
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Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
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Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
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Output format
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