Numerical pricing of American put options on zero-coupon bonds

Walter Allegretto, Yanping Lin, Hongtao Yang

Research output: Journal article publicationJournal articleAcademic researchpeer-review

12 Citations (Scopus)

Abstract

In this paper we study finite volume methods and finite element methods for American put options on zero-coupon bonds. Stability and convergence are established for both methods. Numerical examples show that our methods converge and provide very accurate options prices and early exercise interest rates for all parameter combinations. We also present an error indicator by which one can examine the accuracy of the approximate option prices and early exercise interest rates actually obtained by a numerical method and determine how fine a grid should be used to achieve the desired accuracy.
Original languageEnglish
Pages (from-to)113-134
Number of pages22
JournalApplied Numerical Mathematics
Volume46
Issue number2
DOIs
Publication statusPublished - 1 Aug 2003
Externally publishedYes

ASJC Scopus subject areas

  • Numerical Analysis
  • Computational Mathematics
  • Applied Mathematics

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