A class of finite volume methods is developed for pricing either European or American options under jump-diffusion models based on a linear finite element space. An easy to implement linear interpolation technique is derived to evaluate the integral term involved, and numerical analyses show that the full discrete system matrices are M-matrices. For European option pricing, the resulting dense linear systems are solved by the generalised minimal residual (GMRES) method; while for American options the resulting linear complementarity problems (LCP) are solved using the modulus-based successive overrelaxation (MSOR) method, where the H +-matrix property of the system matrix guarantees convergence. Numerical results are presented to demonstrate the accuracy, efficiency and robustness of these methods.
Email your librarian or administrator to recommend adding this journal to your organisation's collection.
* Views captured on Cambridge Core between 2nd May 2017 - 22nd July 2017. This data will be updated every 24 hours.