International Journal of Statistics and Applied Mathematics
  • Printed Journal
  • Indexed Journal
  • Refereed Journal
  • Peer Reviewed Journal

International Journal of Statistics and Applied Mathematics

2022, Vol. 7, Issue 3, Part B

A numerical comparative analysis between crank-Nicolson finite difference method and binomial model for European call option price


Author(s): Tanmoy Kumar Debnath, Dr. ABM Shahadat Hossain and Toma Debnath

Abstract: There are several kinds of numerical techniques for solving option valuation problems. In this article Binomial model (BM) and Crank-Nicolson finite difference (CNFD) approach are applied and compared with the Black-Scholes analytic solution (BSAS) to determine the best numerical method. It has been noticed that, for the valuation of European call (EC) options at various factors, the Binomial model (BM) is found to be more accurate than the Crank-Nicolson finite difference (CNFD) technique. In addition, for the impact of high volatility, the technique of Crank-Nicolson finite difference (CNFD) approaches quicker to Black-Scholes analytic solution (BSAS) than the Binomial model (BM). Furthermore, in comparison to the Binomial model (BM), CNFD method consumes more time to determine the option price in each time step.

Pages: 94-106 | Views: 141 | Downloads: 21

Download Full Article: Click Here
How to cite this article:
Tanmoy Kumar Debnath, Dr. ABM Shahadat Hossain, Toma Debnath. A numerical comparative analysis between crank-Nicolson finite difference method and binomial model for European call option price. Int J Stat Appl Math 2022;7(3):94-106.
Call for book chapter
International Journal of Statistics and Applied Mathematics