Valuing option on the maximum of two assets using improving modified Gauss-Seidel method

This paper presents the numerical solution for the option on the maximum of two assets using Improving Modified Gauss-Seidel (IMGS) iterative method. Actually, this option can be governed by two-dimensional Black-Scholes partial differential equation (PDE). The Crank-Nicolson scheme is applied to di...

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Bibliographic Details
Main Authors: Koh, Wei Sin, Sundaram, Muthuvalu Mohana, Elayaraja, Aruchunan, Sulaiman Jumat
Format: Conference Proceeding
Language:English
Subjects:
Computing time
Control methods
Gauss-Seidel method
Iterative methods
Partial differential equations
Test procedures
Online Access:Get full text
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Summary:This paper presents the numerical solution for the option on the maximum of two assets using Improving Modified Gauss-Seidel (IMGS) iterative method. Actually, this option can be governed by two-dimensional Black-Scholes partial differential equation (PDE). The Crank-Nicolson scheme is applied to discretize the Black-Scholes PDE in order to derive a linear system. Then, the IMGS iterative method is formulated to solve the linear system. Numerical experiments involving Gauss-Seidel (GS) and Modified Gauss-Seidel (MGS) iterative methods are implemented as control methods to test the computational efficiency of the IMGS iterative method.
ISSN:0094-243X
1551-7616
DOI:10.1063/1.4887582