ADI numerical method to modeling stock insurance based on spread options

Document Type : Research Paper

Authors

1 Department of Mathematics, Faculty of Mathematics Science and Computer, Allameh Tabataba’i University, Tehran, Iran.

2 Department of Applied Mathematics, Faculty of Mathematical Sciences, University of Guilan, Rasht, Iran.

Abstract

‎This paper introduces a spread option model based on two underlying assets‎, ‎namely Bandar Abbas oil refining (Shebandar) and Tehran oil refining (Shatran) companies‎. ‎Regarding the available data of the former‎, ‎we propose the jump-diffusion model for its dynamic‎. ‎After constructing our portfolio‎, ‎we first consider a partial integro-differential equation (PIDE) for the spread option model‎. ‎Then by making some alterations to the literature of the problem and parameters of the model‎, ‎it is demonstrated that the assumed option can be considered as insurance‎, ‎hedging the aforementioned stocks‎. ‎The PIDE is solved by the well-known ADI numerical method‎. ‎Finally‎, ‎we use the real data extracted from the Tehran Stock Exchange and a reliable result is obtained by using MATLAB software‎.

Keywords

Main Subjects

Computational Methods for Differential Equations

Articles in Press, Accepted Manuscript
Available Online from 02 November 2024

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History

  • Receive Date: 24 November 2023
  • Revise Date: 10 August 2024
  • Accept Date: 29 October 2024

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