Finite Differences and Standard Options

  • Rüdiger Seydel
Part of the Universitext book series (UTX)


We now enter the part of the book that is devoted to the numerical solution of equations of the Black-Scholes type. Accordingly, let us assume the scenario characterized by the Assumptions 1.2. In case of European options the function V (S, t) solves the Black-Scholes equation (1.2). It is not really our aim to solve this partial differential equation because it possesses an analytic solution (→ Appendix A3). Ultimately it will be our intention to solve more general equations and inequalities. In particular, American options will be calculated numerically. The primary goal of this chapter is not to calculate single values V (S 0, 0) —for this purpose binomial methods are recommended— but to approximate the surfaces that are defined by V (S, t) on the half strip S > 0, 0 ≤ tT.


Time Level Linear Complementarity Problem American Option Obstacle Problem Dividend Payment 
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  1. 1.
    Notation: In this subsection, x does not have the meaning of transformation (4.3), and r not that of an interest rate.Google Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2004

Authors and Affiliations

  • Rüdiger Seydel
    • 1
  1. 1.Institute of MathematicsUniversity of KölnKölnGermany

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