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Volume 8, Issue 1
A Robust Spectral Method for Pricing of American Put Options on Zero-Coupon Bonds

Edson Pindza & Kailash C. Patidar

DOI: 10.4208/eajam.170516.201017a

East Asian J. Appl. Math., 8 (2018), pp. 126-138.

Published online: 2018-02

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  • Abstract

American put options on a zero-coupon bond problem is reformulated as a linear complementarity problem of the option value and approximated by a nonlinear partial differential equation. The equation is solved by an exponential time differencing method combined with a barycentric Legendre interpolation and the Krylov projection algorithm. Numerical examples shows the stability and good accuracy of the method.

  • Keywords

Interest rate model, American put bond options, zero-coupon bond, barycentric Legendre method, Greeks.

  • AMS Subject Headings

39A05, 65M06, 65M12, 91G60

  • Copyright

COPYRIGHT: © Global Science Press

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@Article{EAJAM-8-126, author = {Edson Pindza and Kailash C. Patidar}, title = {A Robust Spectral Method for Pricing of American Put Options on Zero-Coupon Bonds}, journal = {East Asian Journal on Applied Mathematics}, year = {2018}, volume = {8}, number = {1}, pages = {126--138}, abstract = {

American put options on a zero-coupon bond problem is reformulated as a linear complementarity problem of the option value and approximated by a nonlinear partial differential equation. The equation is solved by an exponential time differencing method combined with a barycentric Legendre interpolation and the Krylov projection algorithm. Numerical examples shows the stability and good accuracy of the method.

}, issn = {2079-7370}, doi = {https://doi.org/10.4208/eajam.170516.201017a}, url = {http://global-sci.org/intro/article_detail/eajam/10888.html} }
TY - JOUR T1 - A Robust Spectral Method for Pricing of American Put Options on Zero-Coupon Bonds AU - Edson Pindza & Kailash C. Patidar JO - East Asian Journal on Applied Mathematics VL - 1 SP - 126 EP - 138 PY - 2018 DA - 2018/02 SN - 8 DO - http://doi.org/10.4208/eajam.170516.201017a UR - https://global-sci.org/intro/article_detail/eajam/10888.html KW - Interest rate model, American put bond options, zero-coupon bond, barycentric Legendre method, Greeks. AB -

American put options on a zero-coupon bond problem is reformulated as a linear complementarity problem of the option value and approximated by a nonlinear partial differential equation. The equation is solved by an exponential time differencing method combined with a barycentric Legendre interpolation and the Krylov projection algorithm. Numerical examples shows the stability and good accuracy of the method.

Edson Pindza and Kailash C. Patidar. (2018). A Robust Spectral Method for Pricing of American Put Options on Zero-Coupon Bonds. East Asian Journal on Applied Mathematics. 8 (1). 126-138. doi:10.4208/eajam.170516.201017a
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