Journal of applied mathematics & informatics

The Korean Society for Computational and Applied Mathematics (한국전산응용수학회)
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MODULUS-BASED SUCCESSIVE OVERRELAXATION METHOD FOR PRICING AMERICAN OPTIONS

  • Zheng, Ning (Department of Mathematics, Tongji University) ;
  • Yin, Jun-Feng (Department of Mathematics, Tongji University)
  • Received : 2012.10.17
  • Accepted : 2012.12.01
  • Published : 2013.09.30
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Abstract

We consider the modulus-based successive overrelaxation method for the linear complementarity problems from the discretization of Black-Scholes American options model. The $H_+$-matrix property of the system matrix discretized from American option pricing which guarantees the convergence of the proposed method for the linear complementarity problem is analyzed. Numerical experiments confirm the theoretical analysis, and further show that the modulus-based successive overrelaxation method is superior to the classical projected successive overrelaxation method with optimal parameter.

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References

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