Analytical solutions of the Black-Scholes pricing model for European Option Valuation via a projected differential transformation method

Abstract

In this paper, a proposed computational method referred to as projected differential transformation method (PDTM) resulting from the modification of the classical differential transformation method (DTM) is applied, for the first time, to the Black-Scholes Equation for European Option Valuation. The results obtained converge faster to their associated exact solution form; these easily computed results represent the analytical values of the associated European call options, and the same algorithm can be followed for European put options. It is shown that PDTM is more efficient, reliable and better than the classical DTM and other semi-analytical methods since less computational work is involved. Hence, it is strongly recommended for both linear and nonlinear stochastic differential equations (SDEs) encountered in financial mathematics.