Corpus ID: 229297481

Explicit RKF-Compact Scheme for Pricing Regime Switching American Options with Varying Time Step

  title={Explicit RKF-Compact Scheme for Pricing Regime Switching American Options with Varying Time Step},
  author={Chinonso Nwankwo and Weizhong Dai},
In this research work, an explicit Runge-Kutta-Fehlberg time integration with a fourth-order compact finite difference scheme in space is employed for solving the regime-switching pricing model. First, we recast the free boundary problem into a system of nonlinear partial differential equations with a multi-fixed domain. We further introduce a transformation based on the square root function with a fixed free boundary from which a high order analytical approximation is obtained for computing… Expand

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