Turbo Warrant rebatesand finite differences : Pricing Turbo Warrant rebates based on one underlying stock with discrete dividendsin the Black-Scholes framework

Abstract: Pricing Turbo Warrants with binomial trees can be a challenging or even impossible task. The presence of a barrier makes pricing highly sensitive to computational settings and numerical parameters, rather than the actual pricing mathematics. To remedy this, new numerical methods, of which Crank Nicolson is one such method, are investigated. The survey indicates that the Crank Nicolson method not only solves the aforementioned sensitivities to settings, but also is a worthy competitor to the binomial method in more cases than just the Turbo Warrant.