A second order L0 stable algorithm for evaluating European options. (2nd May 2007)

• Record Type: Journal Article
• Authors: Thulasiram, Ruppa K.; Zhen, Chen; Chhabra, Amit; Thulasiraman, Parimala; , Abba B. Gumel
• Is Part Of: International journal of high performance computing and networking. Volume 4:Number 5/6(2006)
• Page Start: 311
• Page End: 320
• Publication Date: 2007-05-02
• Subjects: European options -- Pade approximation -- finite difference -- parallel computing -- high performance computing -- option pricing -- computational finance -- shared memory multiprocessors; High performance computing -- Periodicals; Computer networks -- Periodicals; High performance computing; Periodicals; 004.05
• Languages: English
• ISSNs: 1740-0562

Abstract

In this paper, we study the option pricing problem, one of the prominent and challenging problems in computational finance. Using the Pade approximation, we have developed a second order L0 stable discrete parallel algorithm for experimentation on advanced architectures. We have implemented the sequential version of this algorithm and evaluated the European Options. Numerical results are compared with those obtained using other commonly used numerical methods and shown that the new algorithm is robust and efficient than the traditional schemes. Also, using explicit Forward Time Centered Space (FTCS) on the reduced Black-Scholes partial differerential equation, we report pricing of European options. We have done our experiments on a shared memory multiprocessor machine using OpenMP and report a maximum speedup of 3.43 with 16 threads.