This paper develops a numerical method for pricing European options with regime-switching volatility and interest rate governed by the Black-Scholes equation. The method is based on a finite volume method with a spatial discretization and implicit time stepping technique. We show that the system matrix of the discretized system is an M-matrix and present an algorithm for solving the problem. Numerical experiment are implemented for some European option problems to illustrate the usefulness of this method.

Original languageEnglish
Article number012051
JournalJournal of Physics: Conference Series
Issue number1
Publication statusPublished - 31 May 2019
Event3rd International Conference on Mathematics; Pure, Applied and Computation, ICoMPAC 2018 - Surabaya, Indonesia
Duration: 20 Oct 2018 → …


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