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<p>In this paper, we proposed a second-order accurate scheme for numerically solving the passport option pricing problem. The passport option can be valued by solving a nonlinear backward pricing PDE, and it is challenging to find the analytical solution for this PDE. We have used the Crank-Nicolson method for the time derivative discretization, while cubic spline is used for spatial variable discretization. We also examined the stability and convergence properties of our proposed method. In addition to estimating the value of the passport option, the proposed numerical method also approximates some of its significant Greeks, such as Delta, Gamma, and Theta. Finally, numerical experiments are used to verify the efficiency of the proposed technique.</p>

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An efficient and robust computational approach to passport option pricing PDEs

  • 期刊论文

  • 发表日期：

    2025年9月11日

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  • Saurabh Bansal,
  • Srinivasan Natesan

摘要

In this paper, we proposed a second-order accurate scheme for numerically solving the passport option pricing problem. The passport option can be valued by solving a nonlinear backward pricing PDE, and it is challenging to find the analytical solution for this PDE. We have used the Crank-Nicolson method for the time derivative discretization, while cubic spline is used for spatial variable discretization. We also examined the stability and convergence properties of our proposed method. In addition to estimating the value of the passport option, the proposed numerical method also approximates some of its significant Greeks, such as Delta, Gamma, and Theta. Finally, numerical experiments are used to verify the efficiency of the proposed technique.