About the valuation of American option under Black-Scholes model : a numerical study

Abstract

In the history of option pricing, Black-Scholes model is one of the most significant models. In this paper, we present a new numerical strategy for valuing American option pricing problems governed by Black-Scholes model (BSM). Numerical computations are carried out to show the efficiency and robustness of the proposed method. We compare our numerical solution with the ones based on Finite Element Method (FEM) and the Enriched Finite Element Method (PUFEM). Our result shows the efficiency of the proposed strategy. In addition, that approach can be used to treat nonlinear evolutionary problems.

Keywords

• american option
• black-scholes model
• heat equation
• finite element method
• δ−ziti method
• 80m10
• 65n30
• 91g80