Journal of applied mathematics & informatics

The Korean Society for Computational and Applied Mathematics (한국전산응용수학회)
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ADAPTIVE NUMERICAL SOLUTIONS FOR THE BLACK-SCHOLES EQUATION

  • Park, H.W. (Department of Mathematics Education, Seoul National University) ;
  • S.K. Chung (Department of Mathematics Education, Seoul National University)
  • Published : 2003.05.01

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Abstract

Almost all business are affected by the weather so that weather derivatives has been traded to hedge weather risk. Since the weather itself is not an asset with a market price, some analysts believe that the Black-Scholes equation could not be used appropriately to price weather derivative options. But some weather derivatives can be considered as an Asian option, we revisit the Black-scholes model. Numerical solution of the Black-Scholes equation has a significant error at the money option or around the money option, it is necessary to adopt adaptive mesh near to the strike value. Here we propose a numerical method with an adaptive grid refinement.

Keywords

References

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