An adaptive and explicit fourth order Runge–Kutta–Fehlberg method coupled with compact finite differencing for pricing American put options

@article{Nwankwo2020AnAA,
  title={An adaptive and explicit fourth order Runge–Kutta–Fehlberg method coupled with compact finite differencing for pricing American put options},
  author={Chinonso Nwankwo and Weizhong Dai},
  journal={arXiv: Computational Finance},
  year={2020}
}
We propose an adaptive and explicit fourth-order Runge-Kutta-Fehlberg method coupled with a fourth-order compact scheme to solve the American put options problem. First, the free boundary problem is converted into a system of partial differential equations with a fixed domain by using logarithm transformation and taking additional derivatives. With the addition of an intermediate function with a fixed free boundary, a quadratic formula is derived to compute the velocity of the optimal exercise… Expand

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