Question: Project: Implementing a PIDE Set up a computer program to solve Mertons jump diffusion (7.30) numerically. To this end, concentrate on European-style vanilla options. Set

Project: Implementing a PIDE Set up a computer program to solve Merton’s jump diffusion (7.30) numerically. To this end, concentrate on European-style vanilla options. Set up boundary conditions using (4.18), and use a BDF implicit scheme. Think of how to choose xmin, xmax in relation to the strike K. Hint: For testing the core part of the program, set the jump intensity λ = 0 and compare to the Black–Scholes value.

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