A Posteriori Error Estimator for a Front-Fixing Finite Difference Scheme for American Options
arXiv:1504.04594
Abstract
For the numerical solution of the American option valuation problem, we provide a script written in MATLAB implementing an explicit finite difference scheme. Our main contribute is the definition of a posteriori error estimator for the American options pricing which is based on Richardson's extrapolation theory. This error estimator allows us to find a suitable grid where the computed solution, both the option price field variable and the free boundary position, verify a prefixed error tolerance.
6 pages,3 figures, 2 tables. World Congress on Engineering 2015. London 1-3 July 2015