Efficient Semi-Discretization Techniques for Pricing European and American Basket Options

Abstract

This paper studies the valuation of option pricing problem in the presence of several assets. European- and American-style options are dealt with using high order semi-discretization techniques. We integrate the resulting system of semi-discretized ODEs in time with several time-stepping schemes such as explicit Euler method, explicit Runge–Kutta method, and the Runge–Kutta method with adaptive variable step sizes. Numerical results demonstrate that employing higher order semi-discretizations improves the computational performance of the multi-asset option pricing problems.