TY - JOUR
T1 - On the Convergence of a Crank-Nicolson Fitted Finite Volume Method for Pricing European Options Under Regime-Switching Kou’s Jump-Diffusion Models
AU - Gan , Xiaoting
AU - Yin , Junfeng
AU - Li , Rui
JO - Advances in Applied Mathematics and Mechanics
VL - 5
SP - 1290
EP - 1314
PY - 2023
DA - 2023/06
SN - 15
DO - http://doi.org/10.4208/aamm.OA-2021-0016
UR - https://global-sci.org/intro/article_detail/aamm/21777.html
KW - European option pricing, regime-switching Kou’s jump-diffusion model, partial integro-differential equation, fitted finite volume method, Crank-Nicolson scheme.
AB - <p style="text-align: justify;">In this paper, we construct and analyze a Crank-Nicolson fitted finite
volume scheme for pricing European options under regime-switching Kou&#39;s jump-diffusion model which is governed by a system of partial integro-differential equations
(PIDEs). We show that this scheme is consistent, stable and monotone as the mesh sizes
in space and time approach zero, hence it ensures the convergence to the solution of
continuous problem. Finally, numerical experiments are performed to demonstrate the
efficiency, accuracy and robustness of the proposed method.</p>