Abstract
This paper explores a numerical method for European and American option pricing under time fractional jump-diffusion model in Caputo scene. The pricing problem for European options is formulated using a time fractional partial integro-differential equation, whereas the pricing of American options is described by a linear complementarity problem. For European option, we present nonuniform discretization along time and the radial basis function (RBF) method for spatial discretization. The stability and convergence analysis of the discrete scheme are carried out in the case of European options. For American option, the operator splitting method is adopted which split linear complementary problem into two simple equations. The numerical results confirm the accuracy of the proposed method.
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