Solution of the Black-Scholes equation via the Adomian decomposition method

Authors

  • Eric José Avila Universidad Autónoma de Yucatán
  • Angel Gabriel Estrella Universidad Autónoma de Yucatán
  • Luis Daniel Blanco Universidad Autónoma de Yucatán

DOI:

https://doi.org/10.14419/ijamr.v2i4.871

Published:

2013-10-19

Abstract

The Adomian Decomposition Method (ADM) is applied to obtain a fast and reliable solution to the Black-Scholes equation with boundary condition for a European option. We cast the problem of pricing a European option with boundary conditions in terms of a diffusion partial differential equation with homogeneous boundary condition in order to apply the ADM. The analytical solution of the equations is calculated in the form of an explicit series approximation.

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