Sahu, PK and Patel, KS and Behera, R (2023) Three-Time Levels Compact Scheme for Pricing European Options Under Regime Switching Jump-Diffusion Models. In: International Conference on Mathematics and Computing (ICMC 2023), 6-8 January 2023, Goa, pp. 367-378.
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This article presents three-time levels compact scheme for solving the partial integro-differential equation (PIDE) arising in European option pricing under jump-diffusion models in the regime switching market. A diagonally dominant system of linear equations is achieved for a fully discrete problem by eliminating the second derivative approximation using the unknown itself and its first derivative approximation. Moreover, the problem’s initial condition is smoothed to assure the fourth-order convergence of the proposed three-time levels implicit compact scheme. Numerical illustrations for solving PIDE are obtained and results are compared with the three-time levels finite difference scheme. © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd 2023.
| Item Type: | Conference Paper |
|---|---|
| Publication: | Lecture Notes in Networks and Systems |
| Publisher: | Springer Science and Business Media Deutschland GmbH |
| Additional Information: | The copyright for this article belongs to Springer Science and Business Media Deutschland GmbH |
| Keywords: | Costs; Diffusion; Economics; Integrodifferential equations, Compact schemes; European option; Implicit methods; Jump diffusion models; Options pricing; Partial integro-differential equations; Regime switching; Regime switching jump-diffusion model; Three-time level implicit method; Time level, Finite difference method |
| Department/Centre: | Division of Interdisciplinary Sciences > Computational and Data Sciences |
| Date Deposited: | 20 Dec 2023 04:30 |
| Last Modified: | 20 Dec 2023 04:30 |
| URI: | https://eprints.iisc.ac.in/id/eprint/83531 |
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