A finite element approach to the numerical solutions of Leland’s model

Author First name, Last name, Institution

Dongming Wei, Nazarbayev University
Yogi Ahmad Erlangga, Zayed UniversityFollow
Gulzat Zhumakhanova, Nazarbayev University

Document Type

Article

Source of Publication

International Review of Economics & Finance

Publication Date

8-1-2023

Abstract

In this paper, finite element method is applied to Leland’s model for numerical simulation of option pricing with transaction costs. Spatial finite element models based on P1 and/or P2 elements are formulated in combination with a Crank–Nicolson-type temporal scheme. The temporal scheme is implemented using the Rannacher approach. Examples with several sets of parameter values are presented and compared with finite difference results in the literature. Spatial–temporal mesh-size ratios are observed for controlling the stability of our method. Our results compare favorably with the finite difference results in the literature for the model.

DOI Link

10.1016/j.iref.2023.07.076

ISSN

1059-8036

Publisher

Elsevier BV

Disciplines

Business

Keywords

Option pricing, Leland’s model, Finite element

Recommended Citation

Wei, Dongming; Erlangga, Yogi Ahmad; and Zhumakhanova, Gulzat, "A finite element approach to the numerical solutions of Leland’s model" (2023). All Works. 5939.
https://zuscholars.zu.ac.ae/works/5939

Indexed in Scopus

no

Open Access

no