Differential algorithms for American put-options of CEV on dividend-paying stock

Abstract:

As a generalization of B-S model, CEV model is more feasible in practical operation. This paper aims at pricing problem for American put-options of CEV on dividend-paying stock．The variation equation for the model is derived. An explicit difference scheme for the approximate solution is presented Then stability and convergence of the scheme are analyzed，the corresponding stability conditions are given. Numerical experiment shows that this scheme is efficient．