Document Type

Article

Publication Date

2015

Published In

North Carolina Journal Of Mathematics And Statistics

Abstract

We study the Black-Scholes model for American options with dividends. We cast the problem as a free-boundary problem for heat equations and use transformations to rewrite the problem in linear complementarity form. We use explicit and implicit finite difference methods to obtain numerical solutions. We implement and test the methods on a particular example in MATLAB. The effects of dividend payments on option pricing are also considered.

Comments

This work is freely available courtesy of the University of North Carolina Greensboro.

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