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Space-time kernel based numerical method for generalized Black-Scholes equation

  • * Corresponding author: Marjan Uddin

    * Corresponding author: Marjan Uddin 
This work is supported by HEC Pakistan
Abstract Full Text(HTML) Figure(6) / Table(2) Related Papers Cited by
  • In approximating time-dependent partial differential equations, major error always occurs in the time derivatives as compared to the spatial derivatives. In the present work the time and the spatial derivatives are both approximated using time-space radial kernels. The proposed numerical scheme avoids the time stepping procedures and produced sparse differentiation matrices. The stability and accuracy of the proposed numerical scheme is tested for the generalized Black-Scholes equation.

    Mathematics Subject Classification: Primary: 58F15, 58F17; Secondary: 53C35.


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  • Figure 1.  A typical centers arrangements in global space-time domain as well as in a local sub-domain, and sparsity of descretized operator of problem 1, where $ m = 100 $, $ n = 10 $

    Figure 2.  The exact solution versus the approximate solution in space-time domain corresponding to problem 1, when $ m = 1600 $ and $ n = 10 $ in domain $ (x,t)\in (-2,2)\times(0,1) $

    Figure 3.  The numerical solution and error in space-time domain, corresponding to problem 2 when $ m = 400 $ and $ n = 10 $ in the domain $ (x,t)\in (0,1)\times(0,1) $

    Figure 4.  Double barrier option prices obtained by space-time local kernel method

    Figure 5.  Call option prices obtained by space-time local kernel method

    Figure 6.  Put option prices obtained by space-time local kernel method

    Table 1.  Sapce-time (ST) solution of problem 1 for different total collocation points $ m $ and stencil size $ n $, and time integration (TI) solution in domain $ (x,t)\in (-2,2)\times(0,1) $

    $ m $ $ n $ $ L_{\infty} $ ST method (C.time) TI method (C.time)
    100 10 1.23E-02 0.6783 3.2891
    400 9.49E-02 0.7123 6.2821
    1600 1.08E-04 0.9129 10.2370
    2500 1.26E-04 1.1234 15.2950
    100 15 2.37E-02 0.8234 4.3491
    400 1.45E-03 10.2356 9.2371
    1600 2.45E-03 11.2916 13.9820
    2500 3.45E-04 13.1087 20.3582
    100 20 2.22E-02 9.1835 10.10491
    400 2.89E-03 11.2349 12.7146
    1600 9.88E-03 14.8679 21.3812
    2500 7.23E-04 16.1955 25.0492
     | Show Table
    DownLoad: CSV

    Table 2.  Observed maximum absolute error for example 1 in Reza [20] and Kadabajoo [13] for different $ \theta $ in domain $ (x,t)\in (-2,2)\times(0,1) $

    $ M = N $ 10 20 40 80 160
    [20] for $ \theta=1 $ 7.24E-02 3.12E-02 1.39E-02 6.08E-02 2.71E-04
    [20] for $ \theta=\frac{1}{2} $ 1.12E-03 2.08E-02 3.91E-05 7.19E-06 1.31E-06
    [13] for $ \theta=1 $ 7.44E-02 3.94E-02 2.02E-02 1.02E-02 5.16E-03
    [13] for $ \theta=\frac{1}{2} $ 5.89E-03 1.46E-03 3.64E-04 9.10E-05 2.27E-05
     | Show Table
    DownLoad: CSV
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