# 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.

13 questions
Filter by
Sorted by
Tagged with
165 views

### Finite Differences Vega calculation - confirmation on proper approach

I have a MC simulation that uses finite differences to calculate the Greeks. It's for baskets and calendar spreads mostly. Now the logical (to me anyway) approach to calculate Vega is to increase the ...
1 vote
74 views

### Finite difference methods with discontinuity in the payoff function

I have implemented a finite difference scheme for pricing options using a Black-Scholes-like model. I tested my implementation on a call option, and found that it gave extremely inaccurate results. I ...
51 views

### Approximating second derivatives at boundary of finite difference scheme

The Question I am implementing a finite difference scheme for the Heston-Hull-White PDE: \begin{align} \frac{\partial u}{\partial t} &= \frac{1}{2}s^2v\frac{\partial^2 u}{\partial s^2 } + \frac{1}{...
88 views

### How to approximate a delta using monte carlo methods and finite differences via Higham's book?

I'm currently taking a Mathematical Finance module at University and one of the recommended texts is “An Introduction to Financial Option Valuation: Mathematics, Stochastics and Computation” by D.J. ...
204 views

### Confusion about terminology : Finite difference for option pricing

Consider the following initial-boundary value problem for $u = u(x,t),$ $$u_t - a u _{xx} = f(x,t) \text { for } 0 < x < L \text { and } 0 < t< T$$ along with bunch of initial and boundary ...
117 views

172 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 ...