Optimal convergence rate of the explicit finite difference scheme for American option valuation

• Autores: Bei Hu, Jin Liang, Lishang Jiang
• Localización: Journal of computational and applied mathematics, ISSN 0377-0427, Vol. 230, Nº 2, 2009, págs. 583-599
• Idioma: inglés
• DOI: 10.1016/j.cam.2008.12.018
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• Resumen

  • An optimal convergence rate O(?x) for an explicit finite difference scheme for a variational inequality problem is obtained under the stability condition using completely PDE methods. As a corollary, a binomial tree scheme of an American put option (where ) is convergent unconditionally with the rate O((?t)1/2).