Accurate Numerical Method for Pricing Two-Asset American Put Options

<table class="table-group" id="tab2"><tr><td><table class="table"><tr><td class="thead-hr" colspan="4"><hr/></td></tr><tr class="thead"><td align="left"><i> K </i></td><td align="center"><i> N </i></td><td align="center">  Error </td><td align="center">  Rate</td></tr><tr><td class="thead-hr" colspan="4"><hr/></td></tr><tr><td align="left" rowspan="4"> 128 </td><td align="center"> 6 </td><td align="center"><span style="width: 77.525002px;"><svg height="11.225" id="M148" style="vertical-align:-0.1638pt" version="1.1" viewbox="0 0 77.525002 11.225" width="77.525002" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink">
<g transform="matrix(.017,-0,0,-.017,.062,10.963)"><path d="M384 0h-275v27q67 5 81.5 18.5t14.5 68.5v385q0 38 -7.5 47.5t-40.5 10.5l-48 2v24q85 15 178 52v-521q0 -55 14.5 -68.5t82.5 -18.5v-27z" id="x31"></path></g><g transform="matrix(.017,-0,0,-.017,8.222,10.963)"><path d="M113 -12q-24 0 -39.5 16t-15.5 42q0 24 16 40.5t40 16.5t40 -16.5t16 -40.5q0 -26 -16 -42t-41 -16z" id="x2E"></path></g><g transform="matrix(.017,-0,0,-.017,12.098,10.963)"><path d="M412 140l28 -9q0 -2 -35 -131h-373v23q112 112 161 170q59 70 92 127t33 115q0 63 -31 98t-86 35q-75 0 -137 -93l-22 20l57 81q55 59 135 59q69 0 118.5 -46.5t49.5 -122.5q0 -62 -29.5 -114t-102.5 -130l-141 -149h186q42 0 58.5 10.5t38.5 56.5z" id="x32"></path></g><g transform="matrix(.017,-0,0,-.017,20.257,10.963)"><path d="M412 140l28 -9q0 -2 -35 -131h-373v23q112 112 161 170q59 70 92 127t33 115q0 63 -31 98t-86 35q-75 0 -137 -93l-22 20l57 81q55 59 135 59q69 0 118.5 -46.5t49.5 -122.5q0 -62 -29.5 -114t-102.5 -130l-141 -149h186q42 0 58.5 10.5t38.5 56.5z" id="x32"></path></g><g transform="matrix(.017,-0,0,-.017,28.416,10.963)"><path d="M153 550l-26 -186q79 31 111 31q90 0 141.5 -51t51.5 -119q0 -93 -89 -166q-85 -69 -173 -71q-32 0 -61.5 11.5t-41.5 23.5q-18 17 -17 34q2 16 22 33q14 9 26 -1q61 -50 124 -50q60 0 93 43.5t33 104.5q0 69 -41.5 110t-121.5 41q-53 0 -102 -20l38 305h286l6 -8
l-26 -65h-233z" id="x35"></path></g><g transform="matrix(.017,-0,0,-.017,36.576,10.963)"><path d="M137 343l67 33q37 17 63 17q79 0 129.5 -53t50.5 -131q0 -92 -58 -156.5t-147 -64.5t-147 68t-58 182q0 63 17 119t43 95.5t61.5 72t69 52t67.5 31.5q62 22 128 33l6 -32q-56 -11 -108 -35q-149 -71 -184 -231zM227 337q-47 0 -95 -27q-6 -23 -6 -70q0 -93 36 -155.5
t96 -62.5q53 0 78 45.5t25 105.5q0 68 -35 116t-99 48z" id="x36"></path></g><g transform="matrix(.017,-0,0,-.017,44.735,10.963)"><path d="M391 364q0 -28 -20.5 -53.5t-50 -43.5t-70 -34t-73.5 -25t-68 -17v-29q0 -48 20 -81t65 -33q73 0 157 76l16 -23q-107 -113 -221 -113q-21 0 -40.5 6.5t-39 22t-31.5 47t-12 75.5q0 69 33.5 139.5t95.5 114.5q77 55 143 55q42 0 69 -24.5t27 -59.5zM313 350
q0 26 -14.5 40.5t-37.5 14.5q-32 0 -44 -7q-82 -46 -104 -175q200 49 200 127z" id="x1D452"></path></g><g transform="matrix(.017,-0,0,-.017,55.546,10.963)"><path d="M535 230h-483v50h483v-50z" id="x2212"></path></g><g transform="matrix(.017,-0,0,-.017,69.298,10.963)"><path d="M384 0h-275v27q67 5 81.5 18.5t14.5 68.5v385q0 38 -7.5 47.5t-40.5 10.5l-48 2v24q85 15 178 52v-521q0 -55 14.5 -68.5t82.5 -18.5v-27z" id="x31"></path></g>
</svg></span></td><td align="center">— </td></tr><tr><td align="center"> 12 </td><td align="center"><span style="width: 77.525002px;"><svg height="11.225" id="M149" style="vertical-align:-0.1638pt" version="1.1" viewbox="0 0 77.525002 11.225" width="77.525002" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink">
<g transform="matrix(.017,-0,0,-.017,.062,10.963)"><path d="M285 378v-2q65 -13 102 -54.5t37 -97.5q0 -57 -30.5 -104.5t-74 -75t-85.5 -42t-72 -14.5q-31 0 -59.5 11t-40.5 23q-19 18 -16 36q1 16 23 33q13 10 24 0q58 -51 124 -51q55 0 88 40t33 112q0 64 -39 96.5t-88 32.5q-29 0 -64 -11l-6 29q77 25 118 57.5t41 84.5
q0 45 -26.5 69.5t-68.5 24.5q-67 0 -120 -79l-20 20l43 63q51 56 127 56h1q66 0 107 -37t41 -95q0 -42 -31 -71q-22 -23 -68 -54z" id="x33"></path></g><g transform="matrix(.017,-0,0,-.017,8.222,10.963)"><path d="M113 -12q-24 0 -39.5 16t-15.5 42q0 24 16 40.5t40 16.5t40 -16.5t16 -40.5q0 -26 -16 -42t-41 -16z" id="x2E"></path></g><g transform="matrix(.017,-0,0,-.017,12.098,10.963)"><path d="M285 378v-2q65 -13 102 -54.5t37 -97.5q0 -57 -30.5 -104.5t-74 -75t-85.5 -42t-72 -14.5q-31 0 -59.5 11t-40.5 23q-19 18 -16 36q1 16 23 33q13 10 24 0q58 -51 124 -51q55 0 88 40t33 112q0 64 -39 96.5t-88 32.5q-29 0 -64 -11l-6 29q77 25 118 57.5t41 84.5
q0 45 -26.5 69.5t-68.5 24.5q-67 0 -120 -79l-20 20l43 63q51 56 127 56h1q66 0 107 -37t41 -95q0 -42 -31 -71q-22 -23 -68 -54z" id="x33"></path></g><g transform="matrix(.017,-0,0,-.017,20.257,10.963)"><path d="M447 623l8 -12l-283 -613l-74 -10l-7 11q174 283 297 551h-216q-48 0 -62.5 -12t-33.5 -63h-29q10 60 18 148h382z" id="x37"></path></g><g transform="matrix(.017,-0,0,-.017,28.416,10.963)"><path d="M447 623l8 -12l-283 -613l-74 -10l-7 11q174 283 297 551h-216q-48 0 -62.5 -12t-33.5 -63h-29q10 60 18 148h382z" id="x37"></path></g><g transform="matrix(.017,-0,0,-.017,36.576,10.963)"><path d="M137 343l67 33q37 17 63 17q79 0 129.5 -53t50.5 -131q0 -92 -58 -156.5t-147 -64.5t-147 68t-58 182q0 63 17 119t43 95.5t61.5 72t69 52t67.5 31.5q62 22 128 33l6 -32q-56 -11 -108 -35q-149 -71 -184 -231zM227 337q-47 0 -95 -27q-6 -23 -6 -70q0 -93 36 -155.5
t96 -62.5q53 0 78 45.5t25 105.5q0 68 -35 116t-99 48z" id="x36"></path></g><g transform="matrix(.017,-0,0,-.017,44.735,10.963)"><path d="M391 364q0 -28 -20.5 -53.5t-50 -43.5t-70 -34t-73.5 -25t-68 -17v-29q0 -48 20 -81t65 -33q73 0 157 76l16 -23q-107 -113 -221 -113q-21 0 -40.5 6.5t-39 22t-31.5 47t-12 75.5q0 69 33.5 139.5t95.5 114.5q77 55 143 55q42 0 69 -24.5t27 -59.5zM313 350
q0 26 -14.5 40.5t-37.5 14.5q-32 0 -44 -7q-82 -46 -104 -175q200 49 200 127z" id="x1D452"></path></g><g transform="matrix(.017,-0,0,-.017,55.546,10.963)"><path d="M535 230h-483v50h483v-50z" id="x2212"></path></g><g transform="matrix(.017,-0,0,-.017,69.298,10.963)"><path d="M412 140l28 -9q0 -2 -35 -131h-373v23q112 112 161 170q59 70 92 127t33 115q0 63 -31 98t-86 35q-75 0 -137 -93l-22 20l57 81q55 59 135 59q69 0 118.5 -46.5t49.5 -122.5q0 -62 -29.5 -114t-102.5 -130l-141 -149h186q42 0 58.5 10.5t38.5 56.5z" id="x32"></path></g>
</svg></span></td><td align="center"> 1.859 </td></tr><tr><td align="center"> 24 </td><td align="center"><span style="width: 77.525002px;"><svg height="11.175" id="M150" style="vertical-align:-0.20474pt" version="1.1" viewbox="0 0 77.525002 11.175" width="77.525002" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink">
<g transform="matrix(.017,-0,0,-.017,.062,10.862)"><path d="M244 635q90 0 143 -72t53 -177q0 -133 -65 -229.5t-171 -139.5q-79 -32 -140 -32l-5 30q109 18 185 91t101 186l-68 -36q-29 -16 -60 -16q-79 0 -129 51.5t-50 130.5q0 80 57 146.5t149 66.5zM228 602q-52 0 -78 -45.5t-26 -98.5q0 -69 36.5 -115.5t97.5 -46.5
q53 0 90 28q4 31 4 66q0 51 -9.5 95.5t-39 80.5t-75.5 36z" id="x39"></path></g><g transform="matrix(.017,-0,0,-.017,8.222,10.862)"><path d="M113 -12q-24 0 -39.5 16t-15.5 42q0 24 16 40.5t40 16.5t40 -16.5t16 -40.5q0 -26 -16 -42t-41 -16z" id="x2E"></path></g><g transform="matrix(.017,-0,0,-.017,12.098,10.862)"><path d="M412 140l28 -9q0 -2 -35 -131h-373v23q112 112 161 170q59 70 92 127t33 115q0 63 -31 98t-86 35q-75 0 -137 -93l-22 20l57 81q55 59 135 59q69 0 118.5 -46.5t49.5 -122.5q0 -62 -29.5 -114t-102.5 -130l-141 -149h186q42 0 58.5 10.5t38.5 56.5z" id="x32"></path></g><g transform="matrix(.017,-0,0,-.017,20.257,10.862)"><path d="M153 550l-26 -186q79 31 111 31q90 0 141.5 -51t51.5 -119q0 -93 -89 -166q-85 -69 -173 -71q-32 0 -61.5 11.5t-41.5 23.5q-18 17 -17 34q2 16 22 33q14 9 26 -1q61 -50 124 -50q60 0 93 43.5t33 104.5q0 69 -41.5 110t-121.5 41q-53 0 -102 -20l38 305h286l6 -8
l-26 -65h-233z" id="x35"></path></g><g transform="matrix(.017,-0,0,-.017,28.416,10.862)"><path d="M447 623l8 -12l-283 -613l-74 -10l-7 11q174 283 297 551h-216q-48 0 -62.5 -12t-33.5 -63h-29q10 60 18 148h382z" id="x37"></path></g><g transform="matrix(.017,-0,0,-.017,36.576,10.862)"><path d="M384 0h-275v27q67 5 81.5 18.5t14.5 68.5v385q0 38 -7.5 47.5t-40.5 10.5l-48 2v24q85 15 178 52v-521q0 -55 14.5 -68.5t82.5 -18.5v-27z" id="x31"></path></g><g transform="matrix(.017,-0,0,-.017,44.735,10.862)"><path d="M391 364q0 -28 -20.5 -53.5t-50 -43.5t-70 -34t-73.5 -25t-68 -17v-29q0 -48 20 -81t65 -33q73 0 157 76l16 -23q-107 -113 -221 -113q-21 0 -40.5 6.5t-39 22t-31.5 47t-12 75.5q0 69 33.5 139.5t95.5 114.5q77 55 143 55q42 0 69 -24.5t27 -59.5zM313 350
q0 26 -14.5 40.5t-37.5 14.5q-32 0 -44 -7q-82 -46 -104 -175q200 49 200 127z" id="x1D452"></path></g><g transform="matrix(.017,-0,0,-.017,55.546,10.862)"><path d="M535 230h-483v50h483v-50z" id="x2212"></path></g><g transform="matrix(.017,-0,0,-.017,69.298,10.862)"><path d="M285 378v-2q65 -13 102 -54.5t37 -97.5q0 -57 -30.5 -104.5t-74 -75t-85.5 -42t-72 -14.5q-31 0 -59.5 11t-40.5 23q-19 18 -16 36q1 16 23 33q13 10 24 0q58 -51 124 -51q55 0 88 40t33 112q0 64 -39 96.5t-88 32.5q-29 0 -64 -11l-6 29q77 25 118 57.5t41 84.5
q0 45 -26.5 69.5t-68.5 24.5q-67 0 -120 -79l-20 20l43 63q51 56 127 56h1q66 0 107 -37t41 -95q0 -42 -31 -71q-22 -23 -68 -54z" id="x33"></path></g>
</svg></span></td><td align="center"> 1.867 </td></tr><tr><td align="center"> 48 </td><td align="center"><span style="width: 77.525002px;"><svg height="11.125" id="M151" style="vertical-align:-0.1638pt" version="1.1" viewbox="0 0 77.525002 11.125" width="77.525002" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink">
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l-26 -65h-233z" id="x35"></path></g><g transform="matrix(.017,-0,0,-.017,20.257,10.862)"><path d="M384 0h-275v27q67 5 81.5 18.5t14.5 68.5v385q0 38 -7.5 47.5t-40.5 10.5l-48 2v24q85 15 178 52v-521q0 -55 14.5 -68.5t82.5 -18.5v-27z" id="x31"></path></g><g transform="matrix(.017,-0,0,-.017,28.416,10.862)"><path d="M412 140l28 -9q0 -2 -35 -131h-373v23q112 112 161 170q59 70 92 127t33 115q0 63 -31 98t-86 35q-75 0 -137 -93l-22 20l57 81q55 59 135 59q69 0 118.5 -46.5t49.5 -122.5q0 -62 -29.5 -114t-102.5 -130l-141 -149h186q42 0 58.5 10.5t38.5 56.5z" id="x32"></path></g><g transform="matrix(.017,-0,0,-.017,36.576,10.862)"><path d="M456 178h-96v-72q0 -51 12.5 -62.5t72.5 -16.5v-27h-256v27q65 5 78 17t13 62v72h-260v28q182 271 300 426h40v-407h96v-47zM280 225v295h-2q-107 -148 -196 -295h198z" id="x34"></path></g><g transform="matrix(.017,-0,0,-.017,44.735,10.862)"><path d="M391 364q0 -28 -20.5 -53.5t-50 -43.5t-70 -34t-73.5 -25t-68 -17v-29q0 -48 20 -81t65 -33q73 0 157 76l16 -23q-107 -113 -221 -113q-21 0 -40.5 6.5t-39 22t-31.5 47t-12 75.5q0 69 33.5 139.5t95.5 114.5q77 55 143 55q42 0 69 -24.5t27 -59.5zM313 350
q0 26 -14.5 40.5t-37.5 14.5q-32 0 -44 -7q-82 -46 -104 -175q200 49 200 127z" id="x1D452"></path></g><g transform="matrix(.017,-0,0,-.017,55.546,10.862)"><path d="M535 230h-483v50h483v-50z" id="x2212"></path></g><g transform="matrix(.017,-0,0,-.017,69.298,10.862)"><path d="M285 378v-2q65 -13 102 -54.5t37 -97.5q0 -57 -30.5 -104.5t-74 -75t-85.5 -42t-72 -14.5q-31 0 -59.5 11t-40.5 23q-19 18 -16 36q1 16 23 33q13 10 24 0q58 -51 124 -51q55 0 88 40t33 112q0 64 -39 96.5t-88 32.5q-29 0 -64 -11l-6 29q77 25 118 57.5t41 84.5
q0 45 -26.5 69.5t-68.5 24.5q-67 0 -120 -79l-20 20l43 63q51 56 127 56h1q66 0 107 -37t41 -95q0 -42 -31 -71q-22 -23 -68 -54z" id="x33"></path></g>
</svg></span></td><td align="center"> 1.882 </td></tr><tr class="table-tr"><td colspan="4"><hr class="tbody-hr"/></td></tr></table></td></tr></table>

Journal of Function Spaces

tab2

Table 2

Table 2: Accurate Numerical Method for Pricing Two-Asset American Put Options 