how to solve the PDE numerically?

sammus · November 18th, 2003, 6:54 am

Hi! there,Anyone knows how to solve an implied multivariable B-S PDE with stochastic interest rate numerically? Or any reference book/article I have to read thru? I need the gragh to make a comparison to the B-S PDE.Super thanks!Regards,sammus

cryptic26 · November 18th, 2003, 10:35 pm

Not sure what exactly you mean by numerical solution. But the way I would go about is running a simulation with rate being stochatic and assuming that the underlying asset has also a stochstic behaviour [ as assumed by BS ] before converging to the PDE. Hope that helps.

ppauper · November 19th, 2003, 1:09 am

sammus · November 19th, 2003, 3:19 am

sorry, I didn't make myself clear enough. I used the CIR model to get the general B-S PDE by defining the market price of risk "lambda*sqrt(r)/vol" with the virtual arbitrary.is the finite difference different from binomial stuff?sorry for my trivial question. cause I'd like to make some graphs to make it look better;-)

ppauper · November 19th, 2003, 1:08 pm

ppauper · November 19th, 2003, 1:52 pm

sammus · November 21st, 2003, 3:49 am

Super thanks!!I know what I am gonna do in my thesis.