Scientific Computations of Black-Scholes-Merton Equation for Option Pricing

Abstract

Black-Scholes-Merton Partial differential equation represents the model for pricing an option. It is of second order parabolic type differential equation. It is a very useful application for the trading terminal. Using Black-Scholes-Merton option pricing model the trader can find the theoretical value of options (call/put). This model can also be used to price an option on a verity of assets including securities, commodities, currencies etc. It is thus important to solve Black-Scholes-Merton Partial differential equation. The solution provides fair price of an option (call/put). In the present paper several methods are discussed and we have proposed to apply Fourier transformation to solve the model with the due advantages.