Modulus-based Successive Overrelaxation Method for Pricing American Options

by Dr. JunFeng Yin
Department of Mathematics, Tongji University, Shanghai, China
http://www.tongji.edu.cn/~yin

National Institute of Informatics
12th floor, Lecture room 1 (1212)

Tuesday, February 7th, 1:00-2:00pm

Abstract:
　Since the Chicago Board Options Exchange started to operate in 1848, the trading of options has grown to tremendous scale and plays an important role in global economics. Various type of mathematical models for the prices of different kinds of options are proposed during the last decades, and the valuation of options has been topic of active research.
Consider the Black-Scholes model for American option, a high order compact scheme with local mesh refinement is proposed and analyzed. Then, Modulus-based successive overrelaxation method is taken for the solution of linear complementarity problems from discrete Black-Scholes American options model. The sufficient condition for the convergence of proposed methods is given. Numerical experiment further show that the high order compact scheme is efficient, and modulus-based successive overrelaxation method is superior to the classical projected successive overrelaxation method.

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