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Convergence error estimate in solving free boundary diffusion problem by radial basis functions method. (English) Zbl 1040.91058
Summary: This paper gives an order of convergence in applying the radial basis functions as a meshless method for solving diffusion type problems under free boundary condition. For illustration, the numerical solution of the Black-Scholes equation for pricing American options, which is a classical heat diffusion equation under free boundary value condition, is obtained and compared with the traditional binomial method for numerical verification.

91G60 Numerical methods (including Monte Carlo methods)
65M12 Stability and convergence of numerical methods for initial value and initial-boundary value problems involving PDEs
91G20 Derivative securities (option pricing, hedging, etc.)
60G40 Stopping times; optimal stopping problems; gambling theory
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