Option Pricing: Finite Difference and Other Models
Interactive

Option Pricing: Finite Difference and Other Models

Intuition Publishing
Updated Sep 24, 2020

The finite difference method (FDM) is another alternative to binomial procedures for option pricing. It uses a pricing grid as opposed to a pricing tree, which gives it more flexibility when pricing American-style options. As well as describing the FDM, we will discuss some other numerical pricing models, which greatly extend the abilities of traders and analysts, and allow them to price different instruments.