Numerical methods for financial engineering

• Main Author: Wu, Guan
• Other Authors: Tan Eng Leong
• Format: Final Year Project
• Language: English
• Published: Nanyang Technological University 2021
• Subjects: Business::Finance::Options; Engineering::Electrical and electronic engineering
• Online Access: https://hdl.handle.net/10356/149032
• Institution: Nanyang Technological University

The pricing of options is part of core content of financial engineering. Black-Scholes-Merton model is the most classic model to solve option pricing with underlying assets of stocks. Finite difference method is widely used to solve partial differential equations. There are three goals of this paper. The first goal is to derive mathematical expressions of different finite difference methods solving Black-Scholes-Merton model’s partial differential equation. The second goal is to implement these methods with MATLAB solving European options and calculating the numerical results to pave the way for the comparison of each method in accuracy and convergency. Last goal is to extend the program to American and Bermudan options and concludes their results and differences from European options.