Optimization of the Black-Scholes Equation with the Numerical Method of Local Expansion to Minimize Risk Coverage

Advances in Mathematical Finance and Applications

مقاله 10، دوره 6، شماره 4، دی 2021، صفحه 819-830   

نوع مقاله: Research Paper

شناسه دیجیتال (DOI): 10.22034/amfa.2020.579396.1140

نویسندگان

Amirreza Keyghobadi^{* 1}؛ Shadan Sedigh Behzadi²؛ Fatemeh Gervei²

¹Department of Accounting, Central Tehran Branch, Islamic Azad University, Tehran, Iran.

²Department of Mathematics, Qazvin Branch, Islamic Azad University, Qazvin, Iran.

چکیده

In this paper, we present an efficient and accurate method for calculating the Black-Scholes differential equations and solve the Black-Scholes equations using Jacoby and Airfoil orthogonal bases, with the collocation method. The Black-Scholes equation is a partial differential equation, which describes the price of choice in terms of time and the collocation method is a method of deter-mining coefficients. Then we show the computational results and examine the performance of the method for the two options, the price of basic assets and its issues. These results show that the Jacoby method is more efficient in solving the Black Scholes equation, and the method error is less and the convergence rate is higher. In this paper, by applying numerical methods to the desired equation, nonlinear devices can be solved by nonlinear solution methods, such as Newton's iterative method. The existence, uniqueness of the solution, and convergence of the methods are examined, and we will show in an example that by repeating then |u n+1-u n |/|u n | <ε can be reached and this indicates the accuracy of the response to these methods.

کلیدواژه‌ها

Fractional equations؛ Black-Scholes equation؛ Jacobi polynomial؛ Airfoil polynomial؛ Market power Exchange

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