Work

A numerical method for valuation of european option with regime-switching volatility and interest rate

Year: 2019

Type: conference-paper

Abstract: This paper develops a numerical method for pricing European options with regime-switching volatility and interest rate governed by the Black-Scholes equation. The method is based on a finite volume method with a spatial discretization and implicit time stepping technique. We show that the system matrix of the discretized system is an M-matrix and present an algorithm for solving the problem. Numerical experiment are implemented for some European option problems to illustrate the usefulness of this method.

Source: Journal of Physics Conference Series

DOI: 10.1088/1742-6596/1218/1/012051

Authors: Endah RM Putri, Chairul Imron, Mey Lista Tauryawati

Institution: Institut Teknologi Sepuluh Nopember

Language: English

Topic: Stochastic processes and financial applications

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: diamond

OpenAlex ID: W2947360667

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Cites: 9

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Related to: 10