TY - JOUR
T1 - A Discontinuous Galerkin Method for Pricing American Options Under the Constant Elasticity of Variance Model
AU - David P. Nicholls & Andrew Sward
JO - Communications in Computational Physics
VL - 3
SP - 761
EP - 778
PY - 2018
DA - 2018/04
SN - 17
DO - http://doi.org/10.4208/cicp.190513.131114a
UR - https://global-sci.org/intro/article_detail/cicp/10976.html
KW - 
AB - <p style="text-align: justify;">The pricing of option contracts is one of the classical problems in Mathematical
Finance. While useful exact solution formulas exist for simple contracts, typically
numerical simulations are mandated due to the fact that standard features, such
as early-exercise, preclude the existence of such solutions. In this paper we consider
derivatives which generalize the classical Black-Scholes setting by not only admitting
the early-exercise feature, but also considering assets which evolve by the Constant
Elasticity of Variance (CEV) process (which includes the Geometric Brownian Motion
of Black-Scholes as a special case). In this paper we investigate a Discontinuous
Galerkin method for valuing European and American options on assets evolving
under the CEV process which has a number of advantages over existing approaches
including adaptability, accuracy, and ease of parallelization.</p>