TITLE:
A Study on Numerical Solution of Black-Scholes Model
AUTHORS:
Md. Nurul Anwar, Laek Sazzad Andallah
KEYWORDS:
Black-Scholes Model, Numerical Solution, Approximation, Call Option, Error Estimation
JOURNAL NAME:
Journal of Mathematical Finance,
Vol.8 No.2,
May
17,
2018
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.