Investigation for Stability of Fractional
Explicit Method for pricing option

Aasiya Lateef; Chandan.K. Verma

doi:https://doi.org/10.14445/22315373/IJMTT-V48P523

International Journal of Mathematics Trends and Technology

Research Article | Open Access | Download PDF

Volume 48 | Number 3 | Year 2017 | Article Id. IJMTT-V48P523 | DOI : https://doi.org/10.14445/22315373/IJMTT-V48P523

Investigation for Stability of Fractional Explicit Method for pricing option

Aasiya Lateef, Chandan.K. Verma

Citation :

Aasiya Lateef, Chandan.K. Verma, "Investigation for Stability of Fractional Explicit Method for pricing option," International Journal of Mathematics Trends and Technology (IJMTT), vol. 48, no. 3, pp. 168-174, 2017. Crossref, https://doi.org/10.14445/22315373/IJMTT-V48P523

Abstract

In numerical analysis, explicit and implicit approaches are used to obtain numerical approximations of time dependent ordinary and partial differential equations. Fractional order differential equations are used widely for finance market analysis. Implicit solution methods require more computational efforts and are complex to program. In order to overcome these difficulties, explicit method for fractional order differential equation has been introduced which is one of the most recently developed areas in the world of finance. The main aim of this paper is to investigate stability of Fractional Explicit method for qth order time fractional Black-Schols equation by the well known Fourier analysis method and a numerical experiment is presented for comparison of European call option prices for different values of ‘q’.

Keywords

Fractional calculus; Fractional Explicit Method; stability; European call options; time fractional Black-Schols equation; Fourier analysis

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