| Fast and accurate evaluation of a convertible bond underlied by a dividend-paying stock is difficult because of the free boundary presented in the solution. Recent work shows that the singularity-separating method can give highly-accurate solutions of the American options very fast. We generalize this method to price convertible bonds with the two-factor model. Tow schemes, the finite difference and the pseudospectral schemes are constructed using the singularity-separating technique. Numerical example shows that new methods performs better than the popular methods: the projected explicit finite difference method and the projected SOR method. |
