Excel implementation of finite difference methods for option pricing
This paper presents and explains finite difference methods for pricing options and shows how these methods may be implemented in Excel. We cover both the explicit and the implicit finite difference methods. Each uses a numerical approximation to the partial differential equation and boundary conditi...
| Main Authors: | , , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
Bond University
|
| Series: | Spreadsheets in Education |
| Online Access: | http://sie.scholasticahq.com/article/4652-excel-implementation-of-finite-difference-methods-for-option-pricing.pdf |
| id |
doaj-d6bbde6000204613b5067b9890e07430 |
|---|---|
| record_format |
Article |
| spelling |
doaj-d6bbde6000204613b5067b9890e074302020-11-25T02:34:57ZengBond UniversitySpreadsheets in Education1448-6156Excel implementation of finite difference methods for option pricingTimothy J KyngSachi PurcalJinhui C ZhangThis paper presents and explains finite difference methods for pricing options and shows how these methods may be implemented in Excel. We cover both the explicit and the implicit finite difference methods. Each uses a numerical approximation to the partial differential equation and boundary condition to convert the differential equation to a difference equation. The difference equation can be solved using Excel and this solution is a numerical approximation to the option price. This paper explains how we obtain the difference equation from the differential equation and shows the reader how to implement and solve the difference equation using Excel.http://sie.scholasticahq.com/article/4652-excel-implementation-of-finite-difference-methods-for-option-pricing.pdf |
| collection |
DOAJ |
| language |
English |
| format |
Article |
| sources |
DOAJ |
| author |
Timothy J Kyng Sachi Purcal Jinhui C Zhang |
| spellingShingle |
Timothy J Kyng Sachi Purcal Jinhui C Zhang Excel implementation of finite difference methods for option pricing Spreadsheets in Education |
| author_facet |
Timothy J Kyng Sachi Purcal Jinhui C Zhang |
| author_sort |
Timothy J Kyng |
| title |
Excel implementation of finite difference methods for option pricing |
| title_short |
Excel implementation of finite difference methods for option pricing |
| title_full |
Excel implementation of finite difference methods for option pricing |
| title_fullStr |
Excel implementation of finite difference methods for option pricing |
| title_full_unstemmed |
Excel implementation of finite difference methods for option pricing |
| title_sort |
excel implementation of finite difference methods for option pricing |
| publisher |
Bond University |
| series |
Spreadsheets in Education |
| issn |
1448-6156 |
| description |
This paper presents and explains finite difference methods for pricing options and shows how these methods may be implemented in Excel. We cover both the explicit and the implicit finite difference methods. Each uses a numerical approximation to the partial differential equation and boundary condition to convert the differential equation to a difference equation. The difference equation can be solved using Excel and this solution is a numerical approximation to the option price. This paper explains how we obtain the difference equation from the differential equation and shows the reader how to implement and solve the difference equation using Excel. |
| url |
http://sie.scholasticahq.com/article/4652-excel-implementation-of-finite-difference-methods-for-option-pricing.pdf |
| work_keys_str_mv |
AT timothyjkyng excelimplementationoffinitedifferencemethodsforoptionpricing AT sachipurcal excelimplementationoffinitedifferencemethodsforoptionpricing AT jinhuiczhang excelimplementationoffinitedifferencemethodsforoptionpricing |
| _version_ |
1724806305426702336 |