Compact Finite Difference Method for Pricing European and American Options Under Jump-Diffusion Models
Compact Finite Difference Method for Pricing European and American Options Under Jump-Diffusion Models
In this article, a compact finite difference method is proposed for pricing European and American options under jump-diffusion models. Partial integro-differential equation and linear complementarity problem governing European and American options respectively are discretized using Crank-Nicolson Leap-Frog scheme. In proposed compact finite difference method, the second derivative is approximated by …