Skip to main content

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.

7 questions with no upvoted or accepted answers
Filter by
Sorted by
Tagged with
4 votes
0 answers
260 views

Comparison of various improvements to Hagan's SABR formula?

There has been several papers improving the original Hagan's approximation formula (see this answer) to SABR model. At least, I know three below: Obloj Paulot (Also see this thread) Balland (Download)...
jChoi's user avatar
  • 1,164
3 votes
0 answers
108 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 ...
whatamisaying's user avatar
2 votes
0 answers
60 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}{...
user59093's user avatar
1 vote
0 answers
102 views

Combine standard error in finite difference with Monte Carlo

I'm using Montecarlo to estimate the value of an option, $$\overline V(S_T, r, \sigma, T;N)=\mathbb{E} \left[V(S_T, r, \sigma, T)\right]$$ which comes with a standard error $SE$. I'm using "bump-...
apocalypsis's user avatar
1 vote
0 answers
119 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 ...
user59155's user avatar
0 votes
0 answers
462 views

Explicit Finite Difference method to price European Call in Python

...
hener's user avatar
  • 1
0 votes
0 answers
352 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 (...
Aditya's user avatar
  • 1