construct_tridiagonals function

Matrix entries for implicit numerical differentiation using Neumann boundary conditions

construct_tridiagonals(sigma, structure_constant, drift)

Arguments

• sigma: Volatility of diffusion process (without jumps to default)

• structure_constant: The ratio between time interval dt

  and the square of space interval dz^2

• drift: Vector of drift rate of underlying equity grid points, including induced drift from default intensity

Returns

A list with elements super, diag and sub

containing the superdiagonal, diagonal and subdiagonal of the implicit timestep differencing matrix