Consider the following form of the BlackScholes equation: where V (S,) is the option price and S

Question:

Consider the following form of the Black–Scholes equation:

aw 02 2W 2 2 2 - = + (r-q- 0) aw 2 ax W = e-rtV and x = In S,

where V (S,τ) is the option price and S is the asset price. The two-level sixpoint implicit compact scheme takes the form:

where

c=(r-q-27) 4- an = 1 3 3 a-1 = 1 3 + 3c bo = 10 6 - 2c 2 - 2 - M + - n = 0 2 4x2 ao = 10 + 6 + b1 = 1

Show that the compact scheme is second-order time accurate and fourth order space accurate.

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Related Book For answer-question

Mathematical Models Of Financial Derivative

ISBN: 9783642447938

2nd Edition

Authors: Yue-Kuen Kwok

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Question Posted: Dec 05, 2023 01:13 AM

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Consider the following form of the BlackScholes equation: where V (S,) is the option price and S

Question:

aw 02 2²W 2 2 2 - ат = + (r-q- 0²) aw 2 ax W = e-rtV and x = In S,

Step by Step Answer:

To show that the compact scheme is secondorder time accurate and fourthorder space accurate we can p...View the full answer

Mathematical Models Of Financial Derivative

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