Pricing Put Options with the Explicit Finite-Difference Method
Pricing Put Options with the Explicit Finite-Difference Method
This Demonstration shows a put option's value function versus the time to expiry and the asset's log price. The 3D plot shows the American (red dots) and the European (blue dots) put values at each grid point. The European put value is never greater than the American, because the American put can be exercised at any time up to maturity, while the European put can only be exercised at maturity. Use the controls to define the option parameters and the time discretization.