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Exponential Rosenbrock integrators for option pricing

✍ Scribed by Muhammad Asif Gondal

Publisher
Elsevier Science
Year
2010
Tongue
English
Weight
284 KB
Volume
234
Category
Article
ISSN
0377-0427

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✦ Synopsis

In this paper, we are concerned with the time integration of differential equations modeling option pricing. In particular, we consider the Black-Scholes equation for American options. As an alternative to existing methods, we present exponential Rosenbrock integrators. These integrators require the evaluation of the exponential and related functions of the Jacobian matrix. The resulting methods have good stability properties. They are fully explicit and do not require the numerical solution of linear systems, in contrast to standard integrators. We have implemented some numerical experiments in Matlab showing the reliability of the new method.

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