construct_tridiagonals

Matrix entries for implicit numerical differentiation using Neumann boundary conditions

Algorithms to price American and European
equity options, convertible bonds and a
variety of other financial derivatives. It uses an
extension of the usual Black-Scholes model in which
jump to default may occur at a probability specified
by a power-law link between stock price and hazard
rate as found in the paper by Takahashi, Kobayashi,
and Nakagawa (2001) <doi:10.3905/jfi.2001.319302>. We
use ideas and techniques from Andersen and
Buffum (2002) <doi:10.2139/ssrn.355308> and
Linetsky (2006) <doi:10.1111/j.1467-9965.2006.00271.x>.

Brian Boonstra

ragtop

Pricing Equity Derivatives with Extensions of Black-Scholes

construct_tridiagonals function

<dl><dt>sigma</dt>
<dd>Volatility of diffusion process (without jumps to default)</dd>
<dt>structure_constant</dt>
<dd>The ratio between time interval <code>dt</code>
and the square of space interval <code>dz^2</code></dd>
<dt>drift</dt>
<dd>Vector of drift rate of underlying equity grid points, including
induced drift from default intensity</dd></dl>

Arguments

Matrix entries for implicit numerical differentiation using Neumann boundary conditions — construct_tridiagonals

<dl>

<dt>sigma</dt>
<dd>Volatility of diffusion process (without jumps to default)</dd>


<dt>structure_constant</dt>
<dd>The ratio between time interval <code>dt</code>
and the square of space interval <code>dz^2</code></dd>


<dt>drift</dt>
<dd>Vector of drift rate of underlying equity grid points, including
induced drift from default intensity</dd>

</dl>

construct_tridiagonals: Matrix entries for implicit numerical differentiation using Neumann boundary conditions

Description

Usage

Value

Arguments