TY - JOUR
T1 - Pricing European Options on Zero-Coupon Bonds with a Fitted Finite Volume Method
AU - Zhang , Kai
AU - Yang , Xiao-Qi
JO - International Journal of Numerical Analysis and Modeling
VL - 3
SP - 405
EP - 418
PY - 2017
DA - 2017/06
SN - 14
DO - http://doi.org/
UR - https://global-sci.org/intro/article_detail/ijnam/10014.html
KW - Option pricing, finite volume method, partial differential equation.
AB - <p style="text-align: justify;">We present a novel numerical scheme to price European options on discount bond,
where the single factor models are adopted for the short interest rate. This method is based on a
fitted finite volume (FFVM) scheme for the spatial discretization and an implicit scheme for the
time discretization. We show that this scheme is consistent, stable and monotone, hence it ensures
the convergence to the solution of continuous problem. Numerical experiments are performed to
verify the effectiveness and usefulness of this new method.</p>