AppliedMultiple choice
Stepping the heat equation · Part 2 of 3
You price a European option by transforming the Black–Scholes equation into the heat equation and stepping it on a grid with spacing and time step . Write .
To improve accuracy you halve and keep fixed. By what factor does the total work of the explicit scheme grow?
- A2
- B4
- C8
- D16, because the error falls by a factor of four and work grows with the square of that
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