Pricing Financial Instruments – The Finite Difference Method

| March 2, 2014 | 0 Comments

This book explains how to price derivatives with the finite difference technique. It is aimed at practitioners full of many different examples, such as pricing convertible bonds, American options, Barrier options and Parisian options. It also has a nice introduction to stability analysis using the matrix approach and the fourier approach.

The book covers pretty much all you need to know for solving 1d pde’s in finance. It pays special attention to issues such as discontinuties in the payoff and how to deal with critical pricing points such as strikes and barrier points with coordinate transformations. The chapter on discrete sampling for pricing Asian and Parisian options is very useful and is something i have implemented in practice. It works very well.

Rating 4.5/5

Category: Numerical Methods

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