D. L. Young1,2, C. P. Sun1, L. H. Shen1
CMES-Computer Modeling in Engineering & Sciences, Vol.46, No.2, pp. 129-150, 2009, DOI:10.3970/cmes.2009.046.129
Abstract A local differential quadrature (LDQ) method to solve the option-pricing models with stochastic volatilities is proposed. The present LDQ method is a newly developed numerical method which preserves the advantage of high-order numerical solution from the classic differential quadrature (DQ) method. The scheme also overcomes the negative effect of the ill-condition for the resultant full matrix and the sensitivity to the grid distribution. It offers a much better approach for finding the optimal order of polynomial approximation when compared to the conventional DQ method. The option-pricing problem under the stochastic volatilities is an important financial engineering topic governed by the… More >
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