American Option Pricing by the Finite Difference Method: Tips and Tricks from the Trenches

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American Option Pricing by the Finite Difference Method: Tips and Tricks from the Trenches

What if the trusted methods for pricing American options are slowing you down? Join Leif Andersen to uncover why common finite difference schemes underperform, and discover practical fixes that boost speed, accuracy, and stability.

Leif Andersen
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Wed 18 Mar 2026
18:00 - 19:00 GMT
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Event Description

For the special, but important, case of American option pricing, practitioners often find that otherwise well-functioning finite difference methods yield results that are slower, less accurate, and less stable than expected. Perhaps as a consequence, simpler special-purpose methods (e.g., the binomial tree) are sometimes preferred for American options, despite various theoretical and practical drawbacks. In this talk we show how to remedy this situation, through a range of minimally invasive “tips and tricks” that significantly improve the speed and stability of the popular theta-method finite difference scheme when applied to American option values and greeks.

Speaker

Leif Andersen

Leif B. G. Andersen is the Global Co-Head of The Quantitative Strategies & Data Group (QSDG) at Bank of America, and is an adjunct professor at NYU’s Courant Institute of Mathematical Sciences and at CMU’s Tepper School of Business. He holds MSc’s in Electrical and Mechanical Engineering from the Technical University of Denmark, an MBA from University of California at Berkeley, and a PhD in Finance from Aarhus Business School. Having started his career as a robotics engineer at Bosch GBMH in Stuttgart, Leif moved to Finance in 1993 and has now worked for more than 30 years as a quantitative researcher in the global markets area. He was IAQF’s Financial Engineer of the Year in 2023, and a recipient of Risk Magazine’s 2001 and 2018 Quant of the Year Awards. Leif has authored influential research papers and books in all areas of quantitative finance, including the popular 3-volume monograph Interest Rate Modeling, co-authored with Vladimir Piterbarg. He is an Associate Editor of Journal of Computational Finance and Mathematical Finance.