A finite element approach to the numerical solutions of Lelands model
Wei D. Erlangga Y.A. Zhumakhanova G.
January 2024Elsevier Inc.
International Review of Economics and Finance
2024#89582 - 593 pp.
In this paper, finite element method is applied to Lelands model for numerical simulation of option pricing with transaction costs. Spatial finite element models based on P1 and/or P2 elements are formulated in combination with a Crank–Nicolson-type temporal scheme. The temporal scheme is implemented using the Rannacher approach. Examples with several sets of parameter values are presented and compared with finite difference results in the literature. Spatial–temporal mesh-size ratios are observed for controlling the stability of our method. Our results compare favourably with the finite difference results in the literature for the model.
Finite element , Lelands model , Option pricing
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Nazarbayev University, Department of Mathematics, School of Sciences and Humanities, 53 Kabanbay Batyr Ave, Astana, 010000, Kazakhstan
Zayed University, Department of Mathematics, College of Natural and Health Sciences, Abu Dhabi Campus, P.O. Box 144534, United Arab Emirates
Nazarbayev University
Zayed University
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