Volume 17, Issue 3
A Discontinuous Galerkin Method for Pricing American Options Under the Constant Elasticity of Variance Model

David P. Nicholls & Andrew Sward

Commun. Comput. Phys., 17 (2015), pp. 761-778.

Published online: 2018-04

Preview Purchase PDF 112 1000
Export citation
  • Abstract

The pricing of option contracts is one of the classical problems in Mathematical Finance. While useful exact solution formulas exist for simple contracts, typically numerical simulations are mandated due to the fact that standard features, such as early-exercise, preclude the existence of such solutions. In this paper we consider derivatives which generalize the classical Black-Scholes setting by not only admitting the early-exercise feature, but also considering assets which evolve by the Constant Elasticity of Variance (CEV) process (which includes the Geometric Brownian Motion of Black-Scholes as a special case). In this paper we investigate a Discontinuous Galerkin method for valuing European and American options on assets evolving under the CEV process which has a number of advantages over existing approaches including adaptability, accuracy, and ease of parallelization.

  • Keywords

  • AMS Subject Headings

  • Copyright

COPYRIGHT: © Global Science Press

  • Email address
  • BibTex
  • RIS
  • TXT
@Article{CiCP-17-761, author = {}, title = {A Discontinuous Galerkin Method for Pricing American Options Under the Constant Elasticity of Variance Model}, journal = {Communications in Computational Physics}, year = {2018}, volume = {17}, number = {3}, pages = {761--778}, abstract = {

The pricing of option contracts is one of the classical problems in Mathematical Finance. While useful exact solution formulas exist for simple contracts, typically numerical simulations are mandated due to the fact that standard features, such as early-exercise, preclude the existence of such solutions. In this paper we consider derivatives which generalize the classical Black-Scholes setting by not only admitting the early-exercise feature, but also considering assets which evolve by the Constant Elasticity of Variance (CEV) process (which includes the Geometric Brownian Motion of Black-Scholes as a special case). In this paper we investigate a Discontinuous Galerkin method for valuing European and American options on assets evolving under the CEV process which has a number of advantages over existing approaches including adaptability, accuracy, and ease of parallelization.

}, issn = {1991-7120}, doi = {https://doi.org/10.4208/cicp.190513.131114a}, url = {http://global-sci.org/intro/article_detail/cicp/10976.html} }
TY - JOUR T1 - A Discontinuous Galerkin Method for Pricing American Options Under the Constant Elasticity of Variance Model JO - Communications in Computational Physics VL - 3 SP - 761 EP - 778 PY - 2018 DA - 2018/04 SN - 17 DO - http://doi.org/10.4208/cicp.190513.131114a UR - https://global-sci.org/intro/article_detail/cicp/10976.html KW - AB -

The pricing of option contracts is one of the classical problems in Mathematical Finance. While useful exact solution formulas exist for simple contracts, typically numerical simulations are mandated due to the fact that standard features, such as early-exercise, preclude the existence of such solutions. In this paper we consider derivatives which generalize the classical Black-Scholes setting by not only admitting the early-exercise feature, but also considering assets which evolve by the Constant Elasticity of Variance (CEV) process (which includes the Geometric Brownian Motion of Black-Scholes as a special case). In this paper we investigate a Discontinuous Galerkin method for valuing European and American options on assets evolving under the CEV process which has a number of advantages over existing approaches including adaptability, accuracy, and ease of parallelization.

David P. Nicholls & Andrew Sward. (2020). A Discontinuous Galerkin Method for Pricing American Options Under the Constant Elasticity of Variance Model. Communications in Computational Physics. 17 (3). 761-778. doi:10.4208/cicp.190513.131114a
Copy to clipboard
The citation has been copied to your clipboard