Title: A second order L0 stable algorithm for evaluating European options

Authors: Ruppa K. Thulasiram, Chen Zhen, Amit Chhabra, Parimala Thulasiraman, Abba B. Gumel

Addresses: Department of Computer Science, University of Manitoba, Canada. ' Department of Mathematics, University of Western Ontario, Canada. ' Department of Computer Science, University of Manitoba, Canada. ' Department of Computer Science, University of Manitoba, Canada. ' Department of Mathematics, University of Manitoba, Canada

Abstract: In this paper, we study the option pricing problem, one of the prominent and challenging problems in computational finance. Using the Pade approximation, we have developed a second order L0 stable discrete parallel algorithm for experimentation on advanced architectures. We have implemented the sequential version of this algorithm and evaluated the European Options. Numerical results are compared with those obtained using other commonly used numerical methods and shown that the new algorithm is robust and efficient than the traditional schemes. Also, using explicit Forward Time Centered Space (FTCS) on the reduced Black-Scholes partial differerential equation, we report pricing of European options. We have done our experiments on a shared memory multiprocessor machine using OpenMP and report a maximum speedup of 3.43 with 16 threads.

Keywords: European options; Pade approximation; finite difference; parallel computing; high performance computing; option pricing; computational finance; shared memory multiprocessors.

DOI: 10.1504/IJHPCN.2006.013486

International Journal of High Performance Computing and Networking, 2006 Vol.4 No.5/6, pp.311 - 320

Available online: 01 May 2007 *

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