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Zbl 1193.91152
Company, R.; Jódar, L.; Ponsoda, E.; Ballester, C.
Numerical analysis and simulation of option pricing problems modeling illiquid markets. (English)
[J] Comput. Math. Appl. 59, No. 8, 2964-2975 (2010). ISSN 0898-1221

Summary: This paper deals with the numerical analysis and simulation of nonlinear Black-Scholes equations modeling illiquid markets where the implementation of a dynamic hedging strategy affects the price process of the underlying asset. A monotone difference scheme ensuring nonnegative numerical solutions and avoiding unsuitable oscillations is proposed. Stability properties and consistency of the scheme are studied and numerical simulations involving changes in the market liquidity parameter are included.

MSC 2000:: *91G20
91G60
65M06 Finite difference methods (IVP of PDE)

Keywords: nonlinear numerical analysis; simulation; option pricing; illiquid markets

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