In this paper, the meshless smoothed particle hydrodynamic (SPH) method is applied for solving the Black–Scholes model for European and American options, which are governed by a generalized Black–Scholes partial differential equation. We use the [Formula: see text]-method and SPH for discretizing the governing equation in time variable and option pricing, respectively. To validate our SPH method, we compare it with the analytical solution and also the finite difference method. The numerical tests demonstrate the accuracy and robustness of our method.
In this paper, we propose a numerical method to solve the European and the American options by using the SPH method. Because its robustness and efficacy, this numerical method has been widely applied in the computation of partial differential equations particularly in fluid dynamic. To model these financial options, we use the Black Scholes equation. It is a mathematical model consisting of a set of partial differential equation supplemented by some boundary conditions. We evaluate the accuracy of our numerical method by giving some comparisons between the analytic solution and the numerical simulation.
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