Application of the Trefftz Method for Option Pricing

• Autorzy: Katarzyna Brzozowska-Rup , Sylwia Hożejowska , Leszek Hożejowski
• Języki publikacji: EN

Abstrakty

EN

Purpose: Option pricing is hardly a new topic, however, in many cases they lack an analytical solution. The article proposes a new approach to option pricing based on the semi-analytical Trefftz method. Design/methodology/approach: An appropriate transformation makes it possible to reduce the Black-Scholes equation to the heat equation. This admits the Trefftz method (which has shown its effectiveness in heat conduction problems) to be employed. The advantage of such an approach lies in its computational simplicity and in the fact that it delivers a solution satisfying the governing equation. Findings: The theoretical option pricing problem being considered in the paper has been solved by means of the Trefftz method, and the results achieved appear to comply with those taken from the Black-Scholes formula. Numerical simulations have been carried out and compared, which has confirmed the accuracy of the proposed approach. Originality/value: Although a number of solutions to the Black-Scholes model have appeared, the paper presents a thoroughly novel idea of implementation of the Trefftz method for solving this model. So far, the method has been applied to problems having nothing in common with finance. Therefore the present approach might be a starting point for software development, competitive to the existing methods of pricing options. (original abstract)

Słowa kluczowe

EN

Black-Scholes model; Options pricing; Option contracts

PL

Model Blacka-Scholesa; Wycena opcji; Kontrakty opcyjne

• Czasopismo: Zeszyty Naukowe. Organizacja i Zarządzanie / Politechnika Śląska
• Rocznik: 2020
• Numer: z. 146 Competitiveness and Development of Regions in the Context of European Integration and Globalization. State - Trends -Strategies
• Strony: 37--49

Twórcy

autor

Katarzyna Brzozowska-Rup

• Kielce University of Technology

autor

Sylwia Hożejowska

• Kielce University of Technology

autor

Leszek Hożejowski

• Kielce University of Technology

Bibliografia

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Identyfikatory

DOI

10.29119/1641-3466.2020.146.3