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Erschienen in:
2012 | OriginalPaper | Buchkapitel
Beyond Black and Scholes
verfasst von : Rüdiger U. Seydel
Erschienen in: Tools for Computational Finance
Verlag: Springer London
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Chapter 7 goes beyond the Black and Scholes model, now turning to incomplete markets. Nonlinear models are discussed, with a focus on considering transaction costs. Numerical schemes for nonlinear PDEs require monotonicity for convergence. This is applied to an uncertain-volatility model with a barrier call. Next, Levy jump processes are briefly introduced, which lead to partial integro-differential equations (PIDEs). This is exemplified by solving numerically the PIDE for Merton’s jump diffusion. The final section introduces the application of the Fourier transform for option pricing.