FDM in Financial Engineering: Figure9.2

A Partial Differential Equation Approach

FDM in Financial Engineering: Figure9.2

Postby hichmoul » Wed Mar 18, 2009 11:12 am

Hello



is figure 9.2 applicable to the constant /time dependent factor Blackscholes PDE with IVBP (european call option) as well?as well?



Crank Nicolson is a centered scheme in time.



PWoQF Crank Nicolson chapter uses a a forward difference for time...

Is that just wrong? just wrong?



rds,
hichmoul
 
Posts: 4
Joined: Wed Feb 11, 2009 1:37 pm

Postby hichmoul » Wed Mar 18, 2009 11:12 am

I seem to have had issues with the the small text editor here
hichmoul
 
Posts: 4
Joined: Wed Feb 11, 2009 1:37 pm

Postby hichmoul » Wed Mar 18, 2009 12:24 pm

I think I misunderstood the term centered in time in 9.2

centered probably means between time steps n and n+1 for time



i thought it meant V(n+1) - V(n-1) ] / 2 dt
hichmoul
 
Posts: 4
Joined: Wed Feb 11, 2009 1:37 pm

Postby Cuchulainn » Thu Mar 19, 2009 8:45 am

Centred in time can refer to both 1-step and k-step methods. So both interpretations are correct. With 1-step we only need 2 points (which makes the scheme easier to solve). Use with box scheme 9.30 to get second-order accuracy.



hope this helps.



Crank Nicolson is also the name for above approach.
User avatar
Cuchulainn
 
Posts: 677
Joined: Mon Dec 18, 2006 2:48 pm
Location: Amsterdam, the Netherlands


Return to Finite Difference Methods in Financial Engineering (Duffy)

Who is online

Users browsing this forum: No registered users and 1 guest

cron