Finite Difference Approach to Penalty Methods for Pricing Two-Factor American Put Option.

In this work we study numerically penalty methods for pricing the two-factor American put option. We implement three penalty functions to transform the complimentary problem formulation to non-linear parabolic problems with fixed boundaries. Then, we construct finite difference schemes and establish some properties of the discretizations. We present and discuss computational results to illustrate the effciency of the proposed algorithms. [ABSTRACT FROM AUTHOR]