Questions tagged [finite-difference-method]

The tag has no usage guidance.

70 questions
Filter by
Sorted by
Tagged with
59 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 ...
46 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}{...
29 views

Dealing with the ru term in an ADI Finite Difference Scheme

I'm trying to code up the algorithm from this paper. The paper presents an ADI algorithm for pricing options in the Heston-Hull-White model. The starting point is the Heston-Hull-White PDE, given ...
386 views

Finite Difference Method in Greeks (Options)

I need a way to approximate the analytical formula of Greeks of a generic call option using the Finite Difference Method. For example, the FD method for Delta/Gamma is the following one: Now, I am in ...
77 views

Question on boundary conditions when using Finite Difference

I have two questions appearing to me (they are not related directly to each other). My first question is about boundary conditions when using Finite difference methods. There are two ways to do it: a)...
23 views

Calculate error at all spatial indices for a given time step between BS equation and its numerical solution using explicit method

I am using the explicit finite backward difference scheme to discretize and calculate the price of an European call option in a discretization stencil. My goal is to find the error at a given time ...