TY - JOUR
ID - 12255
TI - Finite difference method for basket option pricing under Merton model
JO - Journal of Mathematics and Modeling in Finance
JA - JMMF
LA - en
SN - 2783-0578
AU - Karami, Parisa
AU - Safdari, Ali
AD - Department of Matematics, Allameh Tabataba`i University,Tehran, Iran
AD - Department of Mathematics, Allameh Tabataba&#039;i University
Y1 - 2021
PY - 2021
VL - 1
IS - 1
SP - 69
EP - 73
KW - Merton model
KW - Stochastic Differential Equations
KW - Black-Scholes equation
KW - Brownian Motion
DO - 10.22054/jmmf.2021.56261.1018
N2 - In financial markets , dynamics of underlying assets are often specified via stochasticdifferential equations of jump - diffusion type . In this paper , we suppose that two financialassets evolved by correlated Brownian motion . The value of a contingent claim written on twounderlying assets under jump diffusion model is given by two - dimensional parabolic partialintegro - differential equation ( P I D E ) , which is an extension of the Black - Scholes equation witha new integral term . We show how basket option prices in the jump - diffusion models , mainlyon the Merton model , can be approximated using finite difference method . To avoid a denselinear system solution , we compute the integral term by using the Trapezoidal method . Thenumerical results show the efficiency of proposed method .Keywords: basket option pricing, jump-diffusion models, finite difference method.
UR - https://jmmf.atu.ac.ir/article_12255.html
L1 - https://jmmf.atu.ac.ir/article_12255_953408dc2d9a5f138ee6c6a4f57f137e.pdf
ER -