Comparison of methods for the computation of European option prices

Sinha, Arundhati (2022) Comparison of methods for the computation of European option prices. Bachelor's Thesis, Applied Mathematics.

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Abstract

Financial mathematics is a growing field with a lot of scope. The use of differential equations, stochastic calculus, and probability theory concepts is rife in this field. To delve further into this interconnected field of theoretical mathematics and finance, we evaluate a mathematical model known as the Black-Scholes model. The model is derived using concepts from stochastic calculus as well as through reasoning of financial markets. The Black-Scholes model is represented by a partial differential equation and this is numerically analyzed using the finite difference method. A Feynman-Kac approach to find an exact solution to the differential equation is derived. The discretizations and Feynman-Kac solutions are numerically simulated and compared with the results of the numerical simulation of the analytical solution provided by Fischer Black and Myron Scholes. The comparison is carried out based on computational time, accuracy of results, and the stability of the methods used.

Item Type:	Thesis (Bachelor's Thesis)
Supervisor name:	Wubs, F.W. and Luppes, R.
Degree programme:	Applied Mathematics
Thesis type:	Bachelor's Thesis
Language:	English
Date Deposited:	19 Jul 2022 10:14
Last Modified:	19 Jul 2022 10:14
URI:	https://fse.studenttheses.ub.rug.nl/id/eprint/27951

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