A Hybrid Finite Difference Method for Valuing American Puts

This paper presents a numerical scheme that avoids iterations to solve the nonlinear partial differential equation system for pricing American puts with constant dividend yields. Upon applying a frontfixing technique to the Black-Scholes partial differential equation, a predictor-corrector finite difference scheme is proposed to numerically solve the discrete nonlinear scheme. In the comparison with the solutions from articles that cover zero dividend and constant dividend yields cases, our results are found accurate. The current method is conditionally stable since the Euler scheme is used, the convergency property of the scheme is shown by numerical experiments.