A Finite Difference Scheme for Pricing American Put Options under Kou's Jump-Diffusion Model

作者：Huang Jian; Cen Zhongdi^*; Le Anbo

来源：Journal of Function Spaces and Applications, 2013, 2013: 651573.

DOI：10.1155/2013/651573

We present a stable finite difference scheme on a piecewise uniform mesh along with a penalty method for pricing American put options under Kou's jump-diffusion model. By adding a penalty term, the partial integrodifferential complementarity problem arising from pricing American put options under Kou's jump-diffusion model is transformed into a nonlinear parabolic integrodifferential equation.. en a finite difference scheme is proposed to solve the penalized integrodifferential equation, which combines a central difference scheme on a piecewise uniform mesh with respect to the spatial variable with an implicit-explicit time stepping technique. This leads to the solution of problems with a tridiagonal M-matrix. It is proved that the difference scheme satisfies the early exercise constraint. Furthermore, it is proved that the scheme is oscillation-free and is second-order convergent with respect to the spatial variable.. e numerical results support the theoretical results.

• 出版日期2013
• 单位浙江万里学院