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Title: Pricing Options Using Predictor-Corrector Schemes
Keywords: Predictor-Corrector Scheme, Finite Difference Scheme, Monte Carlo Simulation, Jump Diffusion, Penalty Method, Option Pricing
Issue Date: 5-Apr-2011
Citation: HILPERT THIBAUT (2011-04-05). Pricing Options Using Predictor-Corrector Schemes. ScholarBank@NUS Repository.
Abstract: Widely used explicit and implicit schemes each have their own advantages and drawbacks. Predictor-Corrector schemes are designed to be a compromise of the two by retaining both the stability property of the implicit schemes and the computational efficiency of the explicit schemes. I will present in this thesis three different Predictor-Corrector schemes used in the valuation of options. First, I will consider a Predictor-Corrector finite difference scheme using a front-fixing technique for pricing American puts. Secondly, I will introduce a linearly implicit Predictor-Corrector scheme using a penalty method approach for valuing American options. Lastly, I will develop Predictor-Corrector schemes for Jump-Diffusion stochastic differential equations which will be used in Monte Carlo simulations and I will introduce the special case of the valuation of European options. In each section, I focus on the theory and then I give some numerical experiments using my implemented codes.
Appears in Collections:Master's Theses (Open)

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