An adaptive moving mesh method for a time-fractional Black–Scholes equation

Abstract

AbstractIn this paper we study the numerical method for a time-fractional Black–Scholes equation, which is used for option pricing. The solution of the fractional-order differential equation may be singular near certain domain boundaries, which leads to numerical difficulty. In order to capture the singular phenomena, a numerical method based on an adaptive moving mesh is developed. A finite difference method is used to discretize the time-fractional Black–Scholes equation and error analysis for the discretization scheme is derived. Then, an adaptive moving mesh based on an a priori error analysis is established by equidistributing monitor function. Numerical experiments support these theoretical results.