finite difference method

[rkdlbh]

Hello all

I am currently working on finite difference method for option pricing for a university project but I am struggling to work out the explicit method. I have made my way discretizing the black scholes equation but I am confused over how you use the boundary conditions to find todays option price using grids. I take it that the boundary conditions are the exercise prices for the option and by working backwards I can find todays option price?

I have been using this Option Pricing Using The Explicit Finite Difference Method as a guideline

thank you in advance

 

[Daniel Duffy]

These are documented in the literature. Have a look around and a bit of research.

BTW the explicit method is not very good.
See also my tips on Wilmott.