Welcome seminars 2016: "High-performing finite difference schemes for derivative pricing"

  • Data: 19 maggio 2016 dalle 13:15 alle 16:00

  • Luogo: Dipartimento di Scienze Statistiche "P. Fortunati" - Via Belle Arti 41 - Aula I

Luca Vincenzo Ballestra (Università di Bologna)

Abstract

We are concerned with the numerical approximation of the Black-Scholes model for option pricing.

To this aim, several finite difference methods have been proposed. In this talk, we show how a very simple approach, namely the repeated spatial extrapolation, can perform extremely better than the finite difference schemes that have been developed so far. In particular, we consider the problem of pricing vanilla and digital options under the Black–Scholes model, and show how to obtain errors close to the machine precision in only some hundredths of a second. Possible extensions of the proposed approach to barrier option pricing and to jump-diffusion models will be presented and discussed.

 

Contact person

Giuseppe Cavaliere e Alessandra Luati