Research article

Approximate solution of nonlinear Black–Scholes equation via a fully discretized fourth-order method

  • Received: 06 October 2019 Accepted: 11 December 2019 Published: 06 January 2020
  • MSC : 41A15, 65M20

  • In this work, a new fourth-order finite difference (FD) approximation (for both structured and unstructured grid of nodes) is contributed and equipped with the fourth-order Runge–Kutta scheme to tackle the financial nonlinear partial differential equation (PDE) of Black–Scholes. This timedependent PDE problem is converted to a set of ordinary differential equations (ODEs). It is proved that under several criteria the procedure is time stable. Computational illustrations presented here, show that our approach is fast and accurate. The proposed technique reduces the computational cost, when more accurate results are requested.

    Citation: Azadeh Ghanadian, Taher Lotfi. Approximate solution of nonlinear Black–Scholes equation via a fully discretized fourth-order method[J]. AIMS Mathematics, 2020, 5(2): 879-893. doi: 10.3934/math.2020060

    Related Papers:

  • In this work, a new fourth-order finite difference (FD) approximation (for both structured and unstructured grid of nodes) is contributed and equipped with the fourth-order Runge–Kutta scheme to tackle the financial nonlinear partial differential equation (PDE) of Black–Scholes. This timedependent PDE problem is converted to a set of ordinary differential equations (ODEs). It is proved that under several criteria the procedure is time stable. Computational illustrations presented here, show that our approach is fast and accurate. The proposed technique reduces the computational cost, when more accurate results are requested.
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    © 2020 the Author(s), licensee AIMS Press. This is an open access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0)
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