Probabilistic Possibilistic Models

Numerical Algorithm For Early Exercise Boundary For American Option

V. Egorova

Department of Fundamental Informatics and Optimal Control of Volgograd State University.

Abstract: The numerical algorithm for early exercise for American put options is presented in the paper. It is based on the solution of the equation that is the non-linear analog of free boundary condition. The modifications which allow to reduce the computation time by an order are proposed.

Keywords: Moving grid, free boundary, early exercise, Black-Scholes equation.

UDC: 519.633.6

Received: 25.04.2013
Revised: 29.04.2013