Abstract: Based on the Black-Scholes-Merton option pricing model, we first gave a simplified algorithm of European option pricing equation under Vasicek model by using the method of conversion of valuation units, and then based on the simplified equation, we gave the iterative scheme for the numerical solution of the European option price by using the explicit difference method and the Crank-Nicolson difference method, and verified the stability of the iterative scheme.

Key words: option pricing, Vasicek model, explicit difference method, Crank-Nicolson difference method