Please boost your Plan to download papers

#
Article sample - On the Numerical Solution of Black-Scholes Equation

Article

Finance & Accounting

Pages 3 (753 words)

Numerical Solution of Black-Scholes equation. 1 Introduction Black-Scholes model is used to describe behaviour of derivative instruments like call and put option. The model yields a partial differential equation called the Black-scholes equation which can reduced to the form of the famous heat equation…

Get more done in less time

Let us write a custom article on your topic

“On the Numerical Solution of Black-Scholes Equation” with a personal
15% discount.

Order now
## Introduction

An option is a financial instrument that gives an individual the right to buy or sell an asset, at some time in the future. Options are traded on a number of exchanges throughout the world, the first of which was the Chicago Board Options Exchange (CBOE), which started in 1971.The price V(S,t) of the derivative or the option depends on the price of the underlying S and time t. V(S,t) satisfies the Black Scholes partial differential equation. (1) Where r is the interest free interst rate and ? is the volatility of the underlying. The right to buy the underlying in the future for an agreed upon price , called the Exercise price(E) ,with in a date called the expiry date, is called a Call Option.. Similarly the right to sell the underlying for the Exercise price before the expiry date is the Put Opttion.The time to expiry is the expiry time denoted by T. The pay-off equations for the options gives the boundary conditions for the Black-Scholes equation.The variable t can take values between 0 and T while S can take values from 0 to ? . ...

Download paper
Not exactly what
you need?

### Related papers

Risk Management: Principles and Applications
If the market price for the asset is greater than the strike price, it will be worth while for the holder to use the option. In this instance the option writer is forced to trade the asset to the option owner. The price at which a call is traded is called premium. In the case of calls, a higher stock price means that other things being equal; the option is more likely to be in the money on…

Option Pricing Theory
An option provides the buyer the right to buy or sale the quantity of goods he or she wants at a fixed price known as the strike price. Since the process of buying an option is optional, the holder can choose not to buy or sale the assets. There are two options these are; right to buy and right to sale. Options can come in several varieties like; a put option, gives the seller an underlying price…

The Black Model for Interest Rate Derivatives
Over the last two and half decades, finance has experienced tremendous and exciting developments especially with reference to derivatives markets. One of the reasons explaining the idea of tremendous and exciting developments within financial sector is the fact that both hedger and speculators within financial markets find it attractive to trade derivate specifically assets rather than trading on…

Ff options can only be priced because they can be replicated, why do we need them?
Although derivatives are technically conspicuous reason being they can undergo replication using basic financial instruments, they are still the tools that provide those who participate in the market to full of risk to manage the particular risks. Nature of options dynamic replication Dynamic hedging of options is never conducted even with the market makers(Lussier & PareI, 2004). In nature,…

Debate the thoeries of Accounting for stock options
Fair value model, lattice model and finally minimum value method which is based upon the someone’s willingness to purchase a call option on a share of stock at the current fair value of the stock with the right to postpone payment of the exercise until the end of the options period, ignoring the volatility of the underlying stock in valuation calculation. This has necessitated the emergence of…