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Pricing European Options under two-dimensional Black-Scholes Equation by two different approaches
Mälardalen University, School of Education, Culture and Communication, Educational Sciences and Mathematics. (MAM)
Department of Mathematics and Computer Sciences, Faculty of Sciences, Eduardo Mondlane University, Maputo, Mozambique. (MAM)ORCID iD: 0000-0001-8361-4152
Mälardalen University, School of Education, Culture and Communication, Educational Sciences and Mathematics. (MAM)ORCID iD: 0000-0002-0139-0747
Mälardalen University, School of Education, Culture and Communication, Educational Sciences and Mathematics. (MAM)ORCID iD: 0000-0003-4554-6528
2019 (English)In: Proceedings of 18th Applied Stochastic Models and Data Analysis International Conference with the Demographics 2019 Workshop, Florence, Italy: 11-14 June, 2019 / [ed] Christos H. Skiadas, ISAST: International Society for the Advancement of Science and Technology , 2019, p. 573-582Conference paper, Published paper (Refereed)
Abstract [en]

In the option pricing process, Black-Scholes (1973) solved a partial differential equation and introduced a model to determine the price of an option. While dealing with many problems in financial engineering, the application of Partial Differential Equations (PDEs) is fundamental to explain the changes that occur in the evolved systems. In this paper, we consider the European call option pricing problem that involves a two-dimensional Black-Scholes PDE. We transform the final time condition presented in [7] and compare the numerical prices using Crank-Nicolson scheme with analytic approximation prices obtained for a European basket option. Conclusions related to different parameters effects are given based on obtained results.

Place, publisher, year, edition, pages
ISAST: International Society for the Advancement of Science and Technology , 2019. p. 573-582
Keywords [en]
Stochastic Volatility, 2D Black-Scholes PDE, Crank-Nicolson Method, Basket option, Compound exchange option
National Category
Probability Theory and Statistics
Research subject
Mathematics/Applied Mathematics
Identifiers
URN: urn:nbn:se:mdh:diva-47088ISBN: 978-618-5180-33-1 (electronic)OAI: oai:DiVA.org:mdh-47088DiVA, id: diva2:1394759
Conference
ASMDA2019, 18th Applied Stochastic Models and Data Analysis International Conference
Funder
Sida - Swedish International Development Cooperation AgencyAvailable from: 2020-02-20 Created: 2020-02-20 Last updated: 2021-01-08Bibliographically approved

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Canhanga, BetuelMalyarenko, AnatoliySilvestrov, Sergei

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