Mathematical Analysis of Black-Scholes Partial Differential Equation on Stock Prices
Publication Date: 24/07/2020
Author(s): Amadi I. U., Nwaigwe E., Azor P. A..
Volume/Issue: Volume 3 , Issue 4 (2020)
Abstract:
This paper is centered on Black-Scholes (BS) partial differential equation (PDE) and Crank-Nicolson (CN) numerical solutions for the valuation of European call option. In particular, Crank-Nicolson’s method was successfully applied to the transformed boundary value problems of European call option with results obtained. It was observed that Black-Scholes and Crank-Nicolson are impossible to differentiate but in terms of precisions Black-Scholes analytical values were found to be adequate. Also, a statistical test was performed, using Kolmogorov-Smirnov (KS) for goodness of fit test; results showed that BS and CN came from a common distribution. However, this paper presented here has a vital role in this dynamic area of financial Mathematics.
