Mastering Python for Finance - Second Edition

A class for pricing European options using the explicit method of finite differences

The Python implementation of finite differences by using the explicit method is given in the following FDExplicitEu class, which inherits from the FiniteDifferences class and overrides the required implementation methods:

In [ ]:    import numpy as np    """     Explicit method of Finite Differences     """    class FDExplicitEu(FiniteDifferences):        def setup_boundary_conditions(self):            if self.is_call:                self.grid[:,-1] = np.maximum(                    0, self.boundary_conds - self.K)                self.grid[-1,:-1] = (self.Smax-self.K) * \                    np.exp(-self.r*self.dt*(self.N-self.j_values))            else:                self.grid[:,-1] = np.maximum(                    0, self.K-self.boundary_conds)                self.grid[0,:-1] = (self.K-self.Smax) * \ np.exp(-self.r*self.dt*(self.N-self.j_values)) ...