What numerical method will you implement to solve the BlackS

What numerical method will you implement to solve the Black-Scholes model? Justify your response

It is a general question. I don\'t know the numerical method to solve the equation

Solution

Use finite difference methods. There are two types of finite difference methods: (1) Implicit method and (2) Explicit method.

Suppose that the dependent variable is S.

(1) Implicit method :

You can obtain an implicit finite difference scheme using a backward difference approximation for the time derivative of S, a central difference approximation for the first order derivative of S and a symmetric central difference approximation for the second order derivative of S.

(2) Explicit method :

You can obtain an explicit finite difference scheme using a forward difference approximation for the time derivative of S, a central difference approximation for the first order derivative of S and a symmetric central difference approximation for the second order derivative of S.