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arXiv · 1610.09622

Numerical study of splitting methods for American option valuation

Karel in 't Hout·Radoslav Valkov
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Abstract

This paper deals with the numerical approximation of American-style option values governed by partial differential complementarity problems. For a variety of one- and two-asset American options we investigate by ample numerical experiments the temporal convergence behaviour of three modern splitting methods: the explicit payoff approach, the Ikonen-Toivanen approach and the Peaceman-Rachford method. In addition, the temporal accuracy of these splitting methods is compared to that of the penalty approach.

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Karel in 't Hout, Radoslav Valkov. 2016-10-30. Numerical study of splitting methods for American option valuation. https://arxiv.org/abs/1610.09622

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