High-order compact schemes for Black-Scholes basket options
Bertram D\"uring, Christof Heuer
TL;DR
This paper introduces a high-order compact numerical scheme for the multi-dimensional Black-Scholes model, achieving higher accuracy in pricing basket options compared to standard methods.
Contribution
The paper develops a second-order in time, fourth-order in space compact scheme for multi-asset options, outperforming traditional finite difference approaches.
Findings
The scheme is second-order accurate in time.
The scheme is fourth-order accurate in space.
Numerical tests show improved performance over standard methods.
Abstract
We present a new high-order compact scheme for the multi-dimensional Black-Scholes model with application to European Put options on a basket of two underlying assets. The scheme is second-order accurate in time and fourth-order accurate in space. Numerical examples confirm that a standard second-order finite difference scheme is significantly outperformed.
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