Facoltà di scienze economiche

A new approach to check the free boundary of single factor interest rate put option

Allegretto, Walter ; Barone-Adesi, Giovanni ; Dinenis, Elias ; Lin, Yangpin ; Sorwar, Ghulam

The application of Green’s theorem to free boundary problems in option pricing leads to a new metric to measure numerical errors. Free boundaries for a variety of interest rate models are computed more accurately through minimization of our metric. More

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    Summary
    The application of Green’s theorem to free boundary problems in option pricing leads to a new metric to measure numerical errors. Free boundaries for a variety of interest rate models are computed more accurately through minimization of our metric.