Numerical Solutions Using Finite Differences

Abstract

Among the many numerical procedures available to solve partial differential equations the finite difference method stands out as probably the most widely used method in mathematical finance. Finite difference methods are very powerful and flexible as well. They can be applied to a wide variety of different derivatives with either European or American payoff modes. In this section, we will provide a very detailed discussion of these important methods in a generality far exceeding that which is usually presented in comparable books.