This 2 day workshop will be focusing on:

COURSE OBJECTIVE

• Learn how to use finite difference methods for option pricing in practice.
• Learn about discrete duality, stability, convergence, grid dimensioning, grid alignment, and how-to-do in practice.
• These concepts will be introduced through experiments with a self-coded one-dimensional PDE solver.
• Upon completion of the course, you will be ready to implement the finite difference method for standard 1D models such as

Black-Scholes, local volatility models, and the Hull-White model.

• … and be ready to go on to harder problems, such as: stochastic local volatility, Cheyette, hybrid models and models for
• option market making.
• In other words: From finite difference zero to hero in two days.

DAY 0: Intro Video on how to set up Visual Studio C++ on Your Lap Top

DAY 1: 09.00 – 18:00

• Introduction: The theta scheme for one dimensional partial differential equations. Derivation and formal properties.
• Coding the different components for the theta solver.
• Interfacing to excel and doing some basic tests:
• Duality between backward and forward solution.
• Stability.
• Grid width.
• Grid node placement and smoothing.
• Convergence plots.