# Questions tagged [finite-difference]

Finite difference is a numerical procedure used to approximate derivatives computation by a linear combination of the value of the function at some specific points. This is particularly useful when solving PDEs and SDEs which involve discretization in both time and state dimensions.

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### Local Volatility Model Error

I am implementing my local volatility pricer using the finite difference method in MATLAB. I parametrise the implied volatility surface using the SSVI parametrisation (Gatheral & Jacquier), which ...
72 views

### Operator splitting method on three assets black scholes equation

Currently I am studying finite difference method on derivatives with three (or more) underlyings and little bit confused on operator splitting method because two papers have different result. For the ...
15 views

### QuantLib Lattice Rollback

I got a quesiton for below code. The question has nothing to do with the detail logic of below code, but I am just curious why the roll back function uses "Time to" as a parameter? Why not simply use ...
45 views

### Canonical text on numerical PDEs in finance

I am looking for a text similar to Glasserman's Monte Carlo Methods in Financial Engineering, but with a focus on numerical methods for PDEs. Glasserman's book seems to cover a lot for what is ...
68 views

### Numerical Solution to 3 Dimensional Backward BS PDE

I have a three dimensional backward BS PDE.  \frac{\partial V}{\partial t} + a(t) S \frac{\partial V}{\partial S} + \frac{1}{2} \sigma(t, S)^2 \frac{\partial^2 V}{\partial S^2} + b(t, M) \frac{\...
101 views

### Kirk Spread Approximation, Greeks by Finite Difference

I am using finite difference on Kirk's Approximation for Spread Options to estimate greeks of the Spread Option. Now this is creating an problem in the estimation of gamma. For at the money options (...
I want to calculate the local volatility from Dupire's formula: $\sigma _{VL}^{2} (K,T,S_{0}) = \frac{\frac{\partial C}{\partial T}}{\frac{1}{2} K^{2} \frac{\partial^2 C}{\partial K^2}}$ So I use ...