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Düring, Bertram
Fournié, Michel
Jüngel, Ansgar
Year of Publication: 
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CoFE Discussion Paper 01/07
A nonlinear Black-Scholes equation which models transaction costs arising in the hedging of portfolios is discretized semi-implicitly using high order compact finite difference schemes. In particular, the compact schemes of Rigal are generalized. The numerical results are compared to standard finite difference schemes. It turns out that the compact schemes have very satisfying stability and non-oscillatory properties and are generally more e±cient than the considered classical schemes.
Option pricing
transaction costs
parabolic equations
compact finite difference discretizations
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Working Paper

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