An Introduction to Finite Diffference Methods for PDEs in Finance

Book Chapter: Nizar Touzi, Optimal Stochastic Target problems, and Backward SDE, Fields Institute Monographs, 29, Springer, 2013, pp. 201-212.

18 Pages Posted: 16 Feb 2014 Last revised: 21 Feb 2014

See all articles by Agnes Tourin

Agnes Tourin

NYU Tandon - Department of Finance and Risk Engineering

Date Written: March 22, 2011

Abstract

I discuss in an elementary manner the practical aspects of designing monotone Finite Difference schemes for Hamilton-Jacobi-Bellman equations arising in Quantitative Finance. These are nonlinear equations for which classic Finite Difference methods may fail to converge to the correct solution. The approach based on the theory of viscosity solutions allows us to construct robust numerical approximations.

Keywords: Partial Differential Equations in Finance, Monotone Finite Difference methods, viscosity solutions

JEL Classification: C63, C61

Suggested Citation

Tourin, Agnes, An Introduction to Finite Diffference Methods for PDEs in Finance (March 22, 2011). Book Chapter: Nizar Touzi, Optimal Stochastic Target problems, and Backward SDE, Fields Institute Monographs, 29, Springer, 2013, pp. 201-212., Available at SSRN: https://ssrn.com/abstract=2396142

Agnes Tourin (Contact Author)

NYU Tandon - Department of Finance and Risk Engineering ( email )

NY
United States

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