Document Type : Research Article

Authors

1 University of Isfahan, Isfahan, Iran

2 Department of Mathematics and Statistics, University of Vaasa, P.O. Box 700, FIN-65101 Vaasa, Finland.

Abstract

This article proposes a new numerical technique for pricing asset-or-nothing options using the Black-Scholes partial differential equation (PDE). We first use the θ−weighted method to discretize the time domain, and then use Haar wavelets to approximate the functions and derivatives with respect to the asset price variable. By using some vector and matrix calculations, we reduce the PDE to a system of linear equations that can be solved at each time step for different asset prices. We perform an error analysis to show the convergence of our technique. We also provide some numerical examples to compare our technique with some existing methods and to demonstrate its efficiency and accuracy.

Keywords

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