ABSTRACT
Target Accumulation Redemption Notes (TARN) are financial derivatives which give their holders the right to receive periodic coupons until the accumulated sum of those ones reaches an agreed target. In this work, we solve a partial differential equations model for TARNs by a finite difference alternating directions method. We combine the numerical resolution with a stochastic local volatility technique and show the numerical results for a particular problem.
2010 MATHEMATICS SUBJECT CLASSIFICATION:
Acknowledgements
The authors are very grateful to both reviewers for their valuable comments and suggestions, which contributed to improve the manuscript. They also want to thank their colleague Carlos Vázquez for useful advise.
Disclosure statement
No potential conflict of interest was reported by the authors.