Numerical Option Pricing in the Presence of Bubbles

  title={Numerical Option Pricing in the Presence of Bubbles},
  author={Erik Ekstr{\"o}m and Lina von Sydow and Johan Tysk},
For the standard Black-Scholes equation, there is a unique solution of at most polynomial growth, towards which any reasonable numerical scheme will converge. However, there are financial models for which this uniqueness does not hold, for instance in the case of models for financial bubbles and certain stochastic volatility models. We present a numerical scheme to find the solution corresponding to the option price given by the risk-neutral expectation in the presence of bubbles. 
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Finite difference methods for linear parabolic equations

  • V. Thomée
  • 1990

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