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Parabolic ADI Methods for Pricing America Options on Two Stocks

Equipe d'Analyse et de probabilités, Université d'Evry, Boulevard F. Mitterand, 91025 Evry CEDEX France
Dipartimento di Finanza dell'Impresa e dei Mercati Finanziari, Universita di Udine, via Tomadini n 30/A, Udine, Italy
svillene{at}maths.univ-evry.fr
antonino.zanette{at}d.mf.uniud.it

We propose two numerical methods for pricing American options on two stocks based on the ADI algorithm of Peaceman and Rachford (1955). We prove the stability and convergence of these schemes and establish a comparative result.

Key Words: American options; viscosity solutions; alternating direction implicit method
History: Received: October 20, 2000; revision received: May 22, 2001;revision received: June 21, 2001;