Comparing Accuracy and Efficiency of Numerical Methods for Solving the Black-Scholes Equation in European and American Options
This project presents analytical and numerical problem solving methods for the Black-Scholes equation, which is used for option pricing. We discuss the analytic solution and the discretization of the PDE, along with two types of boundary conditions.
We compare finite difference, explicit, implicit, and stochastic methods for both European and American options.
We furthermore discuss conditions where stochastic solutions may be more appropriate.