Option pricing using a computational method based on reproducing kernel

Abstract

One of the most important subject in financial mathematics is the option pricing. The most famous result in this area is Black–Scholes formula for pricing European options. This paper is concerned with a method for solving a generalized Black–Scholes equation in a reproducing kernel Hilbert space. Subsequently, the convergence of the proposed method is studied under some hypotheses which provide the theoretical basis of the proposed method. Furthermore, the error estimates for obtained approximation in reproducing kernel Hilbert space are presented. Finally, a numerical example is considered to illustrate the computation efficiency and accuracy of the proposed method. © 2017 Elsevier B.V.