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A Study on Numerical Solution of Black-Scholes Model
Department of Natural Science, BGMEA University of Fashion & Technology, Dhaka, Bangladesh
Department of Mathematics, Jahangirnagar University, Savar, Dhaka, Bangladesh
- 1 Department of Natural Science, BGMEA University of Fashion & Technology, Dhaka, Bangladesh
- 2 Department of Mathematics, Jahangirnagar University, Savar, Dhaka, Bangladesh
Journal of Mathematical Finance·Volume 08 (2018)·Pages 372–381·Published 29 March 2018·DOI10.4236/jmf.2018.82024
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Abstract
In the history of option pricing, Black-Scholes model is one of the most significant models. In this article, the main concern is the numerical solution of the Black-Scholes model (a.k.a. Black/Scholes/Merton) for the European call option in a different way. The model is described and an explicit difference scheme was used for the numerical approximation. The stability condition of the scheme is established through convex combination. A different way was used to obtain the numerical value of the model. Estimation of the relative error was calculated in L1-norm in order to test the accuracy of the scheme. Finally, a comparison of the numerical outcomes with the value obtained by another scheme is given.
KeywordsBlack-Scholes ModelNumerical SolutionApproximationCall OptionError Estimation
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