Journal of Computational Finance
ISSN:
1460-1559 (print)
1755-2850 (online)
Editor-in-chief: Christoph Reisinger
TR-BDF2 for fast stable American option pricing
Fabien Le Floc’h
Abstract
ABSTRACT
The trapezoidal rule with second-order backward difference formula (TR-BDF2) finite-difference scheme is applied to the Black-Scholes-Merton partial differential equation on a nonuniform grid. American option convergence and Greeks stability are studied against popular alternatives, namely Crank-Nicolson and Rannacher time-marching.
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