Open AccessA Finite Difference-Spectral Method for Solving the European Call Option Black–Scholes Equation
Author(s) -
Younes Talaei,
Hasan Hosseinzadeh,
Samad Noeiaghdam
Publication year - 2021
Publication title -
mathematical modelling and engineering problems/mathematical modelling of engineering problems
Language(s) - English
Resource type - Journals
eISSN - 2369-0747
pISSN - 2369-0739
DOI - 10.18280/mmep.080215
Subject(s) - black–scholes model , algebraic equation , mathematics , convergence (economics) , galerkin method , spectral method , finite difference method , order (exchange) , algebraic number , finite difference , mathematical optimization , mathematical analysis , finite element method , finance , econometrics , physics , volatility (finance) , nonlinear system , quantum mechanics , economics , thermodynamics , economic growth
In this paper, we present a novel technique based on backward-difference method and Galerkin spectral method for solving Black–Scholes equation. The main propose of this method is to reduce the solution of this problem to the solution of a system of algebraic equations. The convergence order of the proposed method is investigated. Also, we provide numerical experiment to show the validity of proposed method.