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BARRIER OPTIONS UNDER THE MFBM WITH JUMPS : APPLICATION OF THE BDF2 METHOD

  • Choi, Heungsu (Department of Mathematics Chungnam National University) ;
  • Lee, Younhee (Department of Mathematics Chungnam National University)
  • Received : 2020.01.31
  • Accepted : 2020.02.06
  • Published : 2020.02.15

Abstract

In this paper we consider a mixed fractional Brownian motion (mfBm) with jumps. The prices of European barrier options can be evaluated by solving a partial integro-differential equation (PIDE) with variable coefficients, which is derived from the mfBm with jumps. The 2-step backward differentiation formula (BDF2 method) proposed in [6] is applied with the second-order convergence rate in the time and spatial variables. Numerical simulations are carried out to observe the convergence behaviors of the BDF2 method under the mfBm with the Kou model.

Keywords

References

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