This paper introduces a fast numerical method for computing American option pricing problems governed by the Black--Scholes equation. The treatment of the free boundary is based on some properties of the solution of the Black--Scholes equation. An artificial boundary condition is also used at the other end of the domain. The finite difference method is used to solve the resulting problem. Computational results are given for some American call option problems. The results show that the new treatment is very efficient and gives better accuracy than the normal finite difference method.
No takes yet. Share an insight, caveat, or question.
Han et al. (2003) studied this question.
Synapse has enriched 5 closely related papers on similar clinical questions. Consider them for comparative context: