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The Convergence Rate of Finite Difference Schemes in the Presence of Shocks

✍ Scribed by Engquist, Bjorn; Sjögreen, Björn


Book ID
115487171
Publisher
Society for Industrial and Applied Mathematics
Year
1998
Tongue
English
Weight
444 KB
Volume
35
Category
Article
ISSN
0036-1429

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Optimal convergence rate of the explicit
✍ Bei Hu; Jin Liang; Lishang Jiang 📂 Article 📅 2009 🏛 Elsevier Science 🌐 English ⚖ 897 KB

An optimal convergence rate O(∆x) for an explicit finite difference scheme for a variational inequality problem is obtained under the stability condition σ 2 ∆t ∆x 2 1 using completely PDE methods. As a corollary, a binomial tree scheme of an American put option (where σ 2 ∆t ∆x 2 = 1) is convergent