Numerical Solution of Fractional Black-Scholes Equation by Using the Multivariate Padé Approximation
N. Özdemira and M. Yavuzb
aFaculty of Sciences and Arts, Department of Mathematics, Balıkesir University, Balıkesir, Turkey
bFaculty of Science, Department of Mathematics-Computer Sciences, Necmettin Erbakan University, Konya, Turkey
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In this study, a new application of multivariate Padé approximation method has been used for solving European vanilla call option pricing problem. Padé polynomials have occurred for the fractional Black-Scholes equation, according to the relations of "smaller than", or "greater than", between stock price and exercise price of the option. Using these polynomials, we have applied the multivariate Padé approximation method to our fractional equation and we have calculated numerical solutions of fractional Black-Scholes equation for both of two situations. The obtained results show that the multivariate Padé approximation is a very quick and accurate method for fractional Black-Scholes equation. The fractional derivative is understood in the Caputo sense.

DOI: 10.12693/APhysPolA.132.1050
PACS numbers: 02.60.-x, 02.30.Mv, 02.30.Jr