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Financial Engineering Explained

Series Editor
Wim Schoutens
Department of Mathematics
Katholieke Universiteit Leuven
Heverlee, Belgium
Financial Engineering Explained is a series of concise, practical guides
to modern finance, focusing on key, technical areas of risk management
and asset pricing. Written for practitioners, researchers and students,
the series discusses a range of topics in a non-mathematical but highly
intuitive way. Each self-contained volume is dedicated to a specific topic
and offers a thorough introduction with all the necessary depth, but
without too much technical ballast. Where applicable, theory is illus-
trated with real world examples, with special attention to the numerical
implementation.

More information about this series at

http://www.springer.com/series/14984
 Karel in ’t Hout

Numerical Partial
Differential Equations
in Finance Explained
An Introduction to Computational Finance
Karel in ’t Hout
Department of Mathematics and
Computer Science
University of Antwerp
Antwerp
Belgium

Financial Engineering Explained

ISBN 978-1-137-43568-2 ISBN 978-1-137-43569-9 (eBook)
DOI 10.1057/978-1-137-43569-9

Library of Congress Control Number: 2017934655

© The Editor(s) (if applicable) and The Author(s) 2017

The author(s) has/have asserted their right(s) to be identified as the author(s) of this work in
accordance with the Copyright, Designs and Patents Act 1988.
This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher,
whether the whole or part of the material is concerned, specifically the rights of translation,
reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other
physical way, and transmission or information storage and retrieval, electronic adaptation, computer
software, or by similar or dissimilar methodology now known or hereafter developed.
The use of general descriptive names, registered names, trademarks, service marks, etc. in this pub-
lication does not imply, even in the absence of a specific statement, that such names are exempt from
the relevant protective laws and regulations and therefore free for general use.
The publisher, the authors and the editors are safe to assume that the advice and information in this
book are believed to be true and accurate at the date of publication. Neither the publisher nor the
authors or the editors give a warranty, express or implied, with respect to the material contained
herein or for any errors or omissions that may have been made. The publisher remains neutral with
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The registered company address is: The Campus, 4 Crinan Street, London, N1 9XW, United Kingdom
 Preface

A few years after Black and Scholes [5] derived their famous par-
tial differential equation (PDE) for the fair values of European call
and put options, Schwartz [78] considered a finite difference discret-
ization for its approximate solution. Today, the numerical solution
of time-dependent PDEs forms one of the pillars of computational
finance. Efficient, accurate and stable numerical methods are imper-
ative for financial institutions and companies worldwide. Extensive
research is performed, both in academia and industry, into their devel-
opment, analysis and application. This book is intended as a concise,
gentle introduction into this interesting and dynamic field. Its aim is
to provide students and practitioners with an easily accessible, prac-
tical text explaining main concepts, models, methods and results. The
text is organized through a sequence of short chapters. The style is
more descriptive than (mathematically) rigorous. Numerous examples
and numerical experiments are given to illustrate results. Only some
elementary knowledge of mathematics, notably calculus and linear
algebra, is assumed.
The numerical solution processes in this book are obtained fol-
lowing the popular method of lines (MOL) approach. Here a given
time-dependent PDE is semidiscretized on a grid by finite difference
formulas, which yields a large system of ordinary differential equa-
tions (ODEs). Subsequently, a suitable temporal discretization method
is applied, which defines the full discretization.
Chapters 1 and 2 introduce financial option valuation and partial dif-
ferential equations. Next, the MOL approach is elaborated in Chapters
3–8. Much attention is paid to studying stability and convergence of

v
vi Preface

the various discretizations. Important special topics, such as bound-

ary conditions, nonuniform grids, the treatment of nonsmooth initial
data and approximation of the so-called Greeks, are included in the
discussion. In this part the Black–Scholes PDE serves as the prototype
equation for the numerical experiments. Examining numerical meth-
ods in their application to this equation provides key insight into their
properties and performance when applied to many advanced PDEs in
contemporary financial mathematics.
After having considered European call and put options as an ex-
ample, we move on to explore the numerical valuation of more
challenging modern types of options: cash-or-nothing options in
Chapter 9, barrier options in Chapter 10 and American options in
Chapter 11. The latter type of options leads to partial differential in-
equalities and an additional step in the numerical solution process is
required, where so-called linear complementarity problems are solved.
Chapter 12 is devoted to option valuation in the presence of jumps
in the underlying asset price evolution. This gives rise to partial
integro-differential equations. These equations can be viewed as PDEs
with an extra integral term. For their effective numerical solution,
operator splitting methods of the implicit-explicit (IMEX) kind are
introduced.
Chapter 13 extends the MOL approach to two-dimensional PDEs in
finance. Semidiscretization then results in very large systems of ODEs.
For the efficient temporal discretization, operator splitting methods
of the Alternating Direction Implicit (ADI) kind are discussed. As an
example, the numerical valuation of a two-asset option under the
Black–Scholes framework is considered.
Most of the chapters conclude with a short section where notes and
references to the literature are given. These are intended as pointers to
readers who wish to broaden their knowledge or deepen their under-
standing of the topics under consideration. Supplementary material to
this book will be provided on my website.
I am grateful to Peter Forsyth, Sven Foulon, Willem Hundsdorfer,
Wim Schoutens, Jari Toivanen and Maarten Wyns for their genuine
interest and their valuable suggestions and comments on prelimin-
ary versions of this book. Last but not least, I wish to thank Palgrave
Macmillan for the pleasant cooperation.

Antwerp, July 2016 Karel in ’t Hout

 Contents

1 Financial Option Valuation........................................................ 1

1.1 Financial Options ................................................................ 1
1.2 The Black–Scholes PDE ......................................................... 3

2 Partial Differential Equations .................................................... 9

2.1 Convection-Diffusion-Reaction Equations ...................................... 9
2.2 The Model Equation ............................................................. 10
2.3 Boundary Conditions ............................................................ 12
2.4 Notes and References ........................................................... 14

3 Spatial Discretization I ............................................................. 15

3.1 Method of Lines .................................................................. 15
3.2 Finite Difference Formulas ...................................................... 17
3.3 Stability ........................................................................... 21
3.4 Notes and References ........................................................... 23

4 Spatial Discretization II ............................................................ 25

4.1 Boundary Conditions ............................................................ 25
4.2 Nonuniform Grids ............................................................... 29
4.3 Nonsmooth Initial Data .......................................................... 32
4.4 Mixed Central/Upwind Discretization .......................................... 33
4.5 Notes and References ........................................................... 35

5 Numerical Study: Space ............................................................ 37

5.1 Cell Averaging.................................................................... 38
5.2 Nonuniform Grids ............................................................... 41
5.3 Boundary Conditions ............................................................ 42

vii
viii Contents

6 The Greeks ............................................................................. 45

6.1 The Greeks ....................................................................... 45
6.2 Numerical Study ................................................................. 47
6.3 Notes and References ........................................................... 50

7 Temporal Discretization ........................................................... 51

7.1 The θ-Methods ................................................................... 51
7.2 Stability and Convergence ....................................................... 52
7.3 Maximum Norm and Positivity .................................................. 58
7.4 Notes and References ........................................................... 60

8 Numerical Study: Time ............................................................. 61

8.1 Explicit Method .................................................................. 61
8.2 Implicit Methods ................................................................. 63
8.3 Notes and References ........................................................... 68

9 Cash-or-Nothing Options .......................................................... 69

10 Barrier Options ....................................................................... 75

11 American-Style Options ............................................................ 81

11.1 American-Style Options ......................................................... 81
11.2 LCP Solution Methods ........................................................... 84
11.3 Numerical Study ................................................................. 86
11.4 Notes and References ........................................................... 90

12 Merton Model ......................................................................... 91

12.1 Merton Model .................................................................... 91
12.2 Spatial Discretization ............................................................ 93
12.3 IMEX Schemes ................................................................... 95
12.4 Numerical Study ................................................................. 96
12.5 Notes and References ........................................................... 97

13 Two-Asset Options ................................................................... 99

13.1 Two-Asset Options ............................................................... 99
13.2 Spatial Discretization ............................................................ 101
13.3 ADI Schemes ..................................................................... 106
13.4 Numerical Study ................................................................. 108
13.5 Notes and References ........................................................... 111

Appendix A: Wiener Process ........................................................... 113

Appendix B: Feynman–Kac Theorem ............................................... 115

Appendix C: Down-and-Out Put Option Value .................................... 117

 Contents ix

Appendix D: Max-of-Two-Assets Call Option Value ............................. 119

Bibliography ................................................................................ 121

Index .......................................................................................... 127

 List of Figures

Figure 1.1 Payoff functions for call and put options on [0, 3K] ............... 4
Figure 1.2 Exact call and put option value functions on [0, 3K]
for t = T and parameter set (1.8) ....................................... 7
Figure 3.1 Sample grid in the (s, t)-domain, indicated by circles .............. 16
Figure 3.2 Geometric interpretation of the finite difference
formulas (3.3), (3.7), (3.10) for the first derivative f  (s) .......... 17
Figure 4.1 Mapping ϕ defined in Example 4.2.1 .................................. 30
Figure 5.1 Spatial error εi (m) versus si for m = 50 (top) and
m = 51 (bottom). Semidiscretization on uniform
grid by second-order central formulas. No cell averaging ........ 39
Figure 5.2 Spatial error e(m) versus 1/m for all 10 ≤ m ≤ 100.
Semidiscretization on uniform grid by second-order
central formulas. No cell averaging .................................... 40
Figure 5.3 Spatial error e(m) versus 1/m for all 10 ≤ m ≤ 100.
Semidiscretization on uniform grid by second-order
central formulas. With cell averaging .................................. 40
Figure 5.4 Spatial grid points corresponding to Example 4.2.1
if m = 50 ...................................................................... 41
Figure 5.5 Spatial error e(m) versus 1/m for all 10 ≤ m ≤ 100.
Semidiscretization on nonuniform grid by
second-order central formulas. Formula A for
convection: bullets. Formula B for convection:
squares. With cell averaging ............................................. 42
Figure 5.6 Spatial errors e(m) (dark squares) and eROI (m)
(light squares) versus 1/m for 100 ≤ m ≤ 1000.
Semidiscretization on nonuniform grid by
second-order central formulas. Formula B for
convection. Linear boundary condition at s = Smax .
With cell averaging ........................................................ 43

xi
xii List of Figures

Figure 6.1 Greeks for a call option for t = T and parameter set (1.8) ........ 46
Figure 6.2 Delta spatial error ed (m) versus 1/m for all
10 ≤ m ≤ 100. Semidiscretization by second-order
central formulas. Formula B for convection. With
cell averaging. Uniform grid: bullets. Nonuniform
grid: squares ................................................................. 48
Figure 6.3 Gamma spatial error eg (m) versus 1/m for all
10 ≤ m ≤ 100. Semidiscretization by second-order
central formulas. Formula B for convection. With
cell averaging. Uniform grid: bullets. Nonuniform
grid: squares ................................................................. 49
Figure 6.4 Vega spatial error ev (m) versus 1/m for all
10 ≤ m ≤ 100. Semidiscretization by second-order
central formulas. Formula B for convection. With
cell averaging. Uniform grid: bullets. Nonuniform
grid: squares ................................................................. 49
Figure 6.5 Rho spatial error er (m) versus 1/m for all
10 ≤ m ≤ 100. Semidiscretization by second-order
central formulas. Formula B for convection. With
cell averaging. Uniform grid: bullets. Nonuniform
grid: squares ................................................................. 50
Figure 7.1 Stability region θ -method with θ = 0 (shaded) ...................... 54
Figure 7.2 Stability region θ -method with θ = 12 (shaded) ...................... 55
Figure 7.3 Stability region θ -method with θ = 1 (shaded) ...................... 55
Figure 8.1 Fully discrete approximation of call option value
function for t = T obtained with the forward Euler
method if N = 75 (top) and N = 80 (bottom) ........................ 62
Figure 8.2 Temporal error  e(t;50) versus t for all
1 ≤ N ≤ 100. Backward Euler (dark bullets),
Crank–Nicolson (light squares), Crank–Nicolson
with damping (dark squares) ............................................ 64
Figure 8.3 Temporal error  e(t;200) versus t for all
1 ≤ N ≤ 100. Backward Euler (dark bullets),
Crank–Nicolson (light squares), Crank–Nicolson
with damping (dark squares) ............................................ 65
Figure 8.4 Total error E(t;m) versus 1/m with N = m/5
for 10 ≤ m ≤ 1000. Backward Euler (dark bullets),
Crank–Nicolson (light squares), Crank–Nicolson
with damping (dark squares) ............................................ 67
Figure 9.1 Exact cash-or-nothing call option value function on
[0, 3K] × [0, T] with parameter set (9.2) .............................. 70
Figure 9.2 Cash-or-nothing call option with parameter set
(9.2). Total error EROI (t;m) versus 1/m with
N = m/5 for 10 ≤ m ≤ 1000. Crank–Nicolson
method. Cell averaging without damping (dark
 List of Figures xiii

bullets). Cell averaging with damping using two

substeps (dark squares). No cell averaging but with
damping using two substeps (light squares) ......................... 71
Figure 9.3 Cash-or-nothing call option delta with parameter
set (9.2). Total error Ed,ROI (t;m) versus 1/m with
N = m/5 for 10 ≤ m ≤ 1000. Crank–Nicolson
method. Cell averaging and: no damping (dark
bullets), damping using two substeps (dark
squares) and damping using four substeps (dark
triangles). No cell averaging but with damping
using four substeps (light triangles) ................................... 72
Figure 9.4 Cash-or-nothing call option gamma with parameter
set (9.2). Total error Eg,ROI (t;m) versus 1/m with
N = m/5 for 10 ≤ m ≤ 1000. Crank–Nicolson
method. Cell averaging and: no damping (dark
bullets), damping using two substeps (dark
squares) and damping using four substeps (dark
triangles). No cell averaging but with damping
using four substeps (light triangles) ................................... 73
Figure 10.1 Exact down-and-out put option value function on
[H, 3K] × [0, T] with parameter set (10.1) ........................... 76
Figure 10.2 Down-and-out put option with parameter set
(10.1). Total error EROI (t;m) versus 1/m with
N = m/5 for 10 ≤ m ≤ 1000. Crank–Nicolson
method. Cell averaging without damping (dark
bullets). Cell averaging with damping using two
substeps (dark squares). No cell averaging but with
damping using two substeps (light squares) ......................... 77
Figure 10.3 Numerically approximated discrete down-and-out
put option value function on [0, 3K] × [0, T]
with parameter set (10.1) and monitoring times
τj = j T/5 (1 ≤ j ≤ 5) ....................................................... 78
Figure 11.1 Dark: numerically approximated American put
option value function on [ 21 K, 32 K] for t = T and
parameter set (11.10). Light: payoff function ....................... 86
Figure 11.2 Numerically approximated early exercise boundary
for the American put option and parameter set (11.10) .......... 87
Figure 11.3 American put option with parameter set (11.10).
Temporal error  e ROI (t;m) versus 1/m with
N = m/2 for 10 ≤ m ≤ 1000. Constant step
sizes. Backward Euler: light. Crank–Nicolson: dark.
Method (11.5): bullets. Method (11.6): squares.
Method (11.7): triangles .................................................. 88
Figure 11.4 American put option with parameter set (11.10).
Temporal error  e ROI (t;m) versus 1/m with
xiv List of Figures

N = m/2 for 10 ≤ m ≤ 1000. Variable step

sizes. Backward Euler: light. Crank–Nicolson: dark.
Method (11.5): bullets. Method (11.6): squares.
Method (11.7): triangles .................................................. 89
Figure 12.1 Exact put option value functions on [ 12 K, 3K] for
t = T and parameter set (12.4). Black–Scholes
value: light. Merton value: dark ......................................... 93
Figure 12.2 Put option under Merton model with parameter
set (12.4). Total error E ROI (t;m) versus 1/m
with N = m/3 for 10 ≤ m ≤ 1000. Schemes:
Crank–Nicolson (light bullets), IMEX (dark bullets) ............... 97
Figure 13.1 Payoff function for call on the maximum of two
assets option on [0, 3K] × [0, 3K] if K = 100 ......................... 100
Figure 13.2 Exact option value function for call on the
maximum of two assets on [0, 3K] × [0, 3K] for
t = T and parameter set (13.3) .......................................... 101
Figure 13.3 Sparsity pattern of A, A0 , A1 , A2 given by (13.7) if
m1 = m2 = 9. Finite difference approximation (13.5)
of mixed derivative based on formula B .............................. 105
Figure 13.4 Call option on the maximum of two assets with
parameter set (13.3). Temporal error  e ROI (t;m)
versus 1/m with N = m for 10 ≤ m ≤ 100. Schemes:
Crank–Nicolson (light bullets), Douglas with θ = 12
(light squares), CS (dark bullets), MCS with θ = 13
√
(dark squares), HV with θ = 1 – 12 2 (dark triangles) ............ 110
Figure 13.5 Call option on the maximum of two assets with
parameter set (13.3). Total error E ROI (t;m) versus
1/m with N = m for 10 ≤ m ≤ 100. Schemes:
Crank–Nicolson (light bullets), Douglas with θ = 12
(light squares), CS (dark bullets), MCS with θ = 13
√
(dark squares), HV with θ = 1 – 12 2 (dark triangles) ............. 111
 1
Financial Option Valuation

1.1 Financial Options

A financial option is a so-called derivative product. It is derived from
(depends on) a given underlying asset. This underlying asset can be
many different things, for example a stock of a company, a commodity
or a foreign currency. In precise terms:

a financial option is a contract between two parties, the holder

and the writer, which gives the holder the right, but not the
obligation, to buy from or sell to the writer a given underlying
asset at a prescribed price on or before a prescribed time.

Notice that the holder has the right to exercise, but not the obligation.
Hence, the appropriate term “option”. The prescribed price in the op-
tion contract is called the strike price or exercise price and shall be
denoted by K. The prescribed time in the contract is called the matur-
ity time or expiration time and shall be denoted by T. By convention,
the time of inception of the option is set equal to zero and shall be
called today.
The above definition encompasses two basic option types: a call
option, which gives the holder the right to buy the asset, and a put
option, which gives the holder the right to sell the asset.

© The Author(s) 2017 1

K. in ’t Hout, Numerical Partial Differential Equations in Finance Explained,
Financial Engineering Explained, DOI 10.1057/978-1-137-43569-9_1
2 Numerical Partial Differential Equations in Finance Explained

If exercising by the holder is only allowed at the maturity time, then

this is referred to as an European-style option. If exercising by the
holder is allowed at any given time up to and including the maturity
time, then it is called an American-style option. This terminology does
not have a geographical meaning. In the financial option world, a
wide variety of colourful names arises, and more of these will be en-
countered later on. Unless explicitly stated otherwise, we will always
assume that the options under consideration are European-style.
The following example illustrates the natural use of financial options
in practice.

Example 1.1.1
Consider company A, working in euros (EUR) and producing
certain high-tech machines. Company B, working in US dol-
lars (USD), places an order today with company A for such
a machine to be delivered in exactly one year from now for
the price of one million USD. Since the actual USD–EUR ex-
change rate (the value of 1 USD in terms of EUR) in one
year’s time is unknown, company A faces financial risk in this
deal. It can decide to accept this. Alternatively, it can hedge
this risk by acquiring, for example from a bank, a put option
which gives the right to sell one million USD with maturity
time T = 1 year and a certain preferred USD–EUR exchange
rate K. Thus company A has locked in a minimal amount of
EUR, namely K million, that will be received in one year’s
time. The value of K is usually chosen close to or equal to
today’s exchange rate.

The above example shows that options can be employed as an insur-

ance. In general, the use of options can be viewed as redistributing
financial risk between parties. The trading of options has grown rap-
idly over the past decades and is performed both at exchanges and
over-the-counter (OTC), that is, directly between two market parties.
It should be clear that options have financial value. The writer of an
option is compensated upfront for taking on financial risk. One of the
key questions of mathematical finance is:
what, if any, is the fair value of a financial option at inception ?
This question constitutes a fundamental problem, which has been
open in the literature for many years. Pioneers of modern option
 1 Financial Option Valuation 3

valuation are Bachelier [3], Black and Scholes [5] and Merton [62]. In
their celebrated work, Black and Scholes [5] succeeded in answering
the above question, under a number of assumptions, for call and put
options.

1.2 The Black–Scholes PDE

Let Sτ denote the price of the underlying asset at time τ ∈ [0, T]. At ma-
turity time the fair value of a call or put option can easily be expressed
in terms of the asset price at that time. It is equal to φ(ST ), where φ is
the payoff function defined by

max (s – K, 0) for s ≥ 0 (call),
φ(s) = (1.1)
max (K – s, 0) for s ≥ 0 (put).

For example, for a put option, if the asset price at maturity ST is

lower than the strike price K, then the holder will exercise this option
and sell the asset for K, making a profit of K – ST . On the other hand,
if ST is higher than K, then the holder will not exercise this option,
as he/she can obviously sell the asset in the market for a better price
than K. In this case the put option is worthless.
Figure 1.1 displays the graphs of the payoff functions for call and put
options on the s-domain [0, 3K]. Clearly, the two payoffs are piecewise
linear functions, both with a kink at the strike K.
The primary objective in mathematical finance is to determine the
fair option value today, that is, τ = 0. This value is not obvious, since
future asset prices are unknown; compare Example 1.1.1. In order to
arrive at a fair option value, Black and Scholes assumed that the asset
price evolution is given by a stochastic process, so that Sτ is a random
variable for each τ ∈ (0, T]. More precisely, they considered
1
Sτ = S0 e(μ– 2 σ
2 )τ +σ W
τ
(0 ≤ τ ≤ T), (1.2)

where Wτ (τ ≥ 0) denotes the standard Brownian motion or Wiener

process, see Appendix A. The σ > 0 and μ are real constants,
called the volatility and the drift rate, respectively. The stochastic
process (1.2) is referred to as the geometric Brownian motion. If S0
is nonzero, then
 
Sτ
ln = (μ – 12 σ 2 )τ + σ Wτ .
S0
4 Numerical Partial Differential Equations in Finance Explained

Call option
2K

0
0 K 2K 3K
s

Put option
2K

0
0 K 2K 3K
s

Figure 1.1 Payoff functions for call and put options on [0, 3K]

Hence, ln (Sτ /S0 ) is normally distributed with mean (μ – 12 σ 2 )τ and

variance σ 2 τ . In view of this, the random variable Sτ is said to have a
lognormal distribution. It can be shown that the expected value of
Sτ is given by
E[Sτ ] = S0 eμτ .
Thus the drift μ is the rate of return on the expected future asset
prices. Next, the volatility σ forms a measure for the uncertainty in
the future asset prices. An increase in the value of σ yields a higher
probability for large fluctuations.
In addition to the geometric Brownian motion (1.2), several other
assumptions were made by Black and Scholes about the market in
which the option and the underlying asset are traded. For our purposes
here we mention the risk-free interest rate r. This is the theoretical in-
terest rate that holds without any risk of financial loss. It is assumed to
 1 Financial Option Valuation 5

be known and constant and so that a cash investment D0 today grows

deterministically in time according to

D(τ ) = D0 erτ .

A subsequent main assumption in the Black–Scholes framework is no-

arbitrage. This condition states that there is no possibility of a risk-free
return in the market that is greater than that provided by the risk-free
rate r. In other words, if one wishes to achieve a greater return than
that provided by r, then some risk of financial loss is involved.
Under the Black–Scholes assumptions it can be proved that there
exists a unique deterministic real function u of two real variables s and
t such that u(s, t) is the fair value at time τ = T – t of a call or put option
if at that time the asset price equals s, and this function satisfies

∂u ∂ 2u ∂u
(s, t) = 12 σ 2 s2 2 (s, t) + rs (s, t) – ru(s, t) (1.3)
∂t ∂s ∂s

for s > 0 and 0 < t ≤ T. Here ∂u/∂t denotes the first-order partial deriv-
ative, in the mathematical sense, of u with respect to the independent
variable t and ∂u/∂s, ∂ 2 u/∂s2 denote the first- and second-order partial
derivatives, respectively, of u with respect to the independent variable
s. The simple change of variable from time τ to time-till-maturity t has
been done to obtain a formulation that is slightly more convenient.
Equation (1.3) is called the Black–Scholes partial differential equa-
tion (PDE). This seminal result was established in [5, 62] in 1973.
Modern texts including derivations of (1.3) are for example [47, 66, 80,
90]. In the following we discuss several observations and subsequent
results related to the Black–Scholes PDE.
First notice that the function u yields the fair option value for any
possible asset price at any given time that the option is in existence. It
can be shown that if the market price is not the fair value, then there
is an arbitrage opportunity.
As a next observation, the drift rate μ from the asset price process
(1.2) does not appear in the Black–Scholes PDE. This is an equally
surprising and fundamental result, which has led to the important so-
called risk-neutral option valuation theory. It is beyond the scope of
this book to discuss this topic, but see for example the books cited
above.
6 Numerical Partial Differential Equations in Finance Explained

In addition to the Black–Scholes PDE, two further conditions hold

for the call or put option value function u. The first one is a direct
consequence of the fact that the fair option value is known at maturity,
that is, if t = 0. It is given by the payoff function (1.1) and yields the
initial condition

u(s, 0) = φ(s) for s > 0. (1.4)

The second one follows from the fact that if the asset price is ever
zero, then by the geometric Brownian motion (1.2) it remains zero
until maturity. Hence, the fair value at maturity of a call option is equal
to zero and of a put option equal to K. By the no-arbitrage assumption,
these values are discounted with the risk-free interest rate r to any
given time τ = T – t, yielding the boundary condition


0 for 0 ≤ t ≤ T (call),
u(0, t) = (1.5)
e–rt K for 0 ≤ t ≤ T (put).

The equations (1.3), (1.4) and (1.5) together form an initial-boundary

value problem for the Black–Scholes PDE and uniquely determine the
option value function u.
Exact solutions to initial-boundary value problems for PDEs are of-
ten not at hand in (semi-)closed analytical form. The present case is a
useful exception, however. For call and put options, Black and Scholes
derived the famous formula

u(s, t) = s N (d1 ) – e–rt K N (d2 ) (call), (1.6a)

u(s, t) = –s N ( – d1 ) + e–rt K N ( – d2 ) (put), (1.6b)

for s > 0, 0 < t ≤ T with

ln (s/K) + (r + 12 σ 2 )t √
d1 = √ , d2 = d1 – σ t, (1.6c)
σ t

where N denotes the standard normal cumulative distribution func-

tion,
 1 Financial Option Valuation 7

 y 1
1 2
N (y) = √ e– 2 x dx (y ∈ R).
2π –∞

There is a neat relation, the put-call parity, which links the fair put
and call option values on the same underlying for the same strike K
and maturity T:

put(s, t) + s = call(s, t) + e–rt K (s ≥ 0, 0 ≤ t ≤ T). (1.7)

This relation can be proved by an elementary argument using the no-

arbitrage assumption and holds in a general setting for European-style
options.

Call option
2K

0
0 K 2K 3K
s

Put option
2K

0
0 K 2K 3K
s

Figure 1.2 Exact call and put option value functions on [0, 3K] for t = T and
parameter set (1.8)
8 Numerical Partial Differential Equations in Finance Explained

As an illustration, Figure 1.2 displays the graphs of the call and put
option value functions given by the Black–Scholes formula (1.6) on
[0, 3K] for t = T and parameters

K = 100, T = 1, r = 0.05, σ = 0.25. (1.8)

In financial practice there is a big demand for more advanced options

that are tailored to the specific needs of investors. These are referred
to as exotic options. It turns out that, under the Black–Scholes assump-
tions, the PDE (1.3) is not just fulfilled for the fair values of standard
call and put options, but also for a wide range of exotic options. For
these only the domain and the initial and boundary conditions for (1.3)
change. A number of examples will be seen in the course of this book.
If one moves outside of the Black–Scholes framework, for instance
when considering asset price processes different from the geometric
Brownian motion (1.2), then the option valuation PDE (1.3) itself will
change.
 2
Partial Differential Equations

2.1 Convection-Diffusion-Reaction Equations

As opposed to ordinary differential equations (ODEs), partial differ-
ential equations (PDEs) concern functions of multiple independent
variables. In this chapter we consider PDEs of the time-dependent
convection-diffusion-reaction kind,

∂u ∂ 2u ∂u
(s, t) = d(s) 2 (s, t) + c(s) (s, t) – r(s)u(s, t) (2.1)
∂t ∂s ∂s

for Smin < s < Smax and 0 < t ≤ T. Here Smin , Smax are given real
values or ±∞ and c, d, r denote given real-valued functions where d
is always assumed to be nonnegative. The real-valued function u is the
unknown.
Most of the PDEs that arise in contemporary financial option valu-
ation theory are of the convection-diffusion-reaction kind. Clearly the
choice

c(s) = rs, d(s) = 12 σ 2 s2 , r(s) ≡ r

yields the Black–Scholes PDE (1.3). Further, one has Smin = 0 and
Smax = ∞ for standard call and put options.
In the literature, often an alternative notation by means of subscripts
is used for the partial derivatives of a function. This gives a slightly

© The Author(s) 2017 9

K. in ’t Hout, Numerical Partial Differential Equations in Finance Explained,
Financial Engineering Explained, DOI 10.1057/978-1-137-43569-9_2
10 Numerical Partial Differential Equations in Finance Explained

shorter formulation for (2.1), which we will often employ,

ut (s, t) = d(s)uss (s, t) + c(s)us (s, t) – r(s)u(s, t).

Time-dependent convection-diffusion-reaction equations are ubi-

quitous in science and engineering. In applications in physics and
chemistry the uss -part represents a diffusion process, the us -part a con-
vection process (for instance, transport due to fluid flow) and the
u-part a reaction process. In this context, s is often called the space
variable and t the time variable. Since s lies on the real line, the PDE
(2.1) is said to be one-dimensional.
In financial mathematics, the convection and diffusion parts corres-
pond to, respectively, the drift and the volatility in the underlying asset
price process (under the so-called risk-neutral probability measure).
The reaction term represents discounting. The independent variables
s and t stand for the underlying asset price and the time-till-maturity.
For these two variables it is common practice to use also the physical
terminology above.
We always assume that the PDE (2.1) is supplemented with an
initial condition,

u(s, 0) = u0 (s) for Smin < s < Smax , (2.2)

where u0 denotes a given function. Thus u(s, t) is prescribed for t = 0.

In physics and chemistry, the function u0 gives the initial state of the
quantity under consideration. If (2.1) represents a financial option
valuation PDE, then u0 is equal to the payoff function φ, that is, the
fair option value at maturity.

2.2 The Model Equation

To gain first insight into possible solutions of convection-diffusion-
reaction equations, we let the spatial domain (Smin , Smax ) = R and
discuss the model equation,

ut (s, t) = duss (s, t) + cus (s, t) – ru(s, t), (2.3)

 2 Partial Differential Equations 11

with real constants c, d, r. We consider the convection, diffusion and

reaction parts separately, starting with the simplest case.

Reaction equation The pure reaction equation ut (s, t) = –ru(s, t) is

directly solved and yields the exact solution

u(s, t) = e–rt u0 (s) for s ∈ R, 0 ≤ t ≤ T.

In a financial context, this represents discounting (with the risk-free

rate).

Convection equation The pure convection equation ut (s, t) = cus (s, t)

also has a simple exact solution, namely

u(s, t) = u0 (s + ct) for s ∈ R, 0 ≤ t ≤ T.

For any given fixed t, the graph of u(·, t) is a shift of the graph of the
initial function u0 with –ct units. If c > 0 then the shift is to the left,
whereas if c < 0 then it is to the right. When s is interpreted as spatial
position and t as time, then –c represents velocity.

Diffusion equation The pure diffusion equation ut (s, t) = duss (s, t)

with d > 0 is often called the heat equation and does in general not
admit closed analytical formulas for its exact solutions. A particular
solution is given by
 2
1 s
p(s, t) = √ exp – for s ∈ R, 0 < t ≤ T.
4πdt 4dt

The above is called the fundamental solution or Green’s function.

For clarity, dt denotes here the product of d and t. If t tends to
zero, then p(·, t) becomes the Dirac delta function. The solution p
can be viewed as the probability density function of a normal distri-
bution with mean 0 and variance 2dt. The general solution to the heat
equation can be expressed in semi-closed analytical form,

 ∞
u(s, t) = p(s – x, t)u0 (x)dx. (2.4)
–∞
12 Numerical Partial Differential Equations in Finance Explained

Hence, u(s, t) can be regarded as a weighted average of u0 or as the

expected value of a certain random variable. We mention that by using
the Green’s function it is possible to derive the Black–Scholes formula
(1.6), see for example [90].

2.3 Boundary Conditions

In computational practice, to render the numerical solution feasible,
the spatial domain (Smin , Smax ) is taken as bounded and conditions on
u are prescribed at the boundary points of this domain.
For various financial options boundedness of the spatial domain in-
trinsically holds. For instance, it is often fulfilled for barrier options,
which shall be discussed in Chapter 10. If the spatial domain is intrins-
ically unbounded, such as for standard call and put options, then it is
common to truncate this domain.
Boundary conditions for PDEs appear in several types. The two
best known are the Dirichlet boundary condition and the Neumann
boundary condition. These conditions prescribe, respectively, the val-
ues of u(s, t) and the values of the first-order derivative us (s, t) at the
pertinent spatial boundary.
As an illustration, consider call and put options and a truncated do-
main (0, Smax ). At the lower boundary s = 0 the Dirichlet condition
(1.5) applies. At the upper boundary s = Smax a common Dirichlet
condition is specified by


Smax – e–rt K for 0 ≤ t ≤ T (call),
u(Smax , t) = (2.5)
0 for 0 ≤ t ≤ T (put),

and a Neumann condition by


1 for 0 ≤ t ≤ T (call),
us (Smax , t) = (2.6)
0 for 0 ≤ t ≤ T (put).

The two conditions (2.5), (2.6) are visually in accordance with the
graphs of u in Figure 1.2 whenever Smax is sufficiently large. These con-
ditions only provide approximations, however, to the actual option
 2 Partial Differential Equations 13

value function and its first derivative to s. But by taking Smax suffi-
ciently large, the approximation error can be made arbitrarily small.
The conditions (2.5), (2.6) have a natural financial interpretation.
Consider for example a put. If the asset price is ever large relative to
the strike, then it is very likely to remain large until maturity and a
put option will be worthless. This explains the homogeneous (that is,
zero) condition in (2.5). Further, a small change in the asset price will
have essentially no influence on the put option value, yielding the ho-
mogeneous condition in (2.6). These arguments remain valid for many
other asset price processes than the geometric Brownian motion. Thus
(2.5) and (2.6) are generic in this sense.
For exotic options, deducing accurate Dirichlet or Neumann con-
ditions at the truncated boundaries can be a difficult task. A popular
alternative is to impose the linear boundary condition,

uss (Smax , t) = 0 for 0 ≤ t ≤ T. (2.7)

This is also called the zero gamma condition (compare Chapter 6).
Clearly, (2.7) states that the second derivative of the option value to s
vanishes at s = Smax . This represents a linear dependence of the option
value on the underlying asset price and holds for a broad variety of fin-
ancial options whenever Smax is sufficiently large. Figure 1.2 illustrates
this for call and put options.
The actual choice of the truncated domain is often done heuristic-
ally in practice. It should be large enough such that the approximation
errors at the truncated boundaries have a negligible effect on the op-
tion values in the region of interest (ROI). The latter is a subdomain
of underlying asset prices S0 = s that is of actual, practical interest.
For example, for call and put options, a possible region of interest
is 12 K < s < 32 K. A common choice for Smax in the Black–Scholes
framework is then
1 √
Smax = se(r– 2 σ
2 )T+ασ T
(2.8)

with s = 32 K and α ≈ 3. This choice is prompted by the fact that, in

the risk-neutral setting, the probability that ST > Smax (with S0 = s) is
low; it corresponds to a so-called three-sigma event.
14 Numerical Partial Differential Equations in Finance Explained

Finally, observe that if s tends to zero in the Black–Scholes PDE (1.3),

then the convection and diffusion parts both vanish. Accordingly, the
PDE is said to degenerate at the boundary s = 0. It turns out that degen-
eracy is a typical feature with financial option valuation PDEs. If s = 0,
then the Black–Scholes PDE reduces to a pure reaction equation, and
its exact solution in the case of call and put options is given by (1.5).

2.4 Notes and References

The PDE (2.1) is linear, that is, if u and v are any given two solutions,
then also any linear combination of u and v forms a solution.
Throughout this book we shall assume that the initial-boundary
value problems for PDEs under consideration always possess a unique
classical solution. Existence and uniqueness results are provided in, for
example, the book [22].
In financial mathematics, the fair values of options are often ex-
pressed as expected discounted payoff values under the so-called
risk-neutral probability measure, see for example the book [80]. It is
the Feynman–Kac theorem that provides the mathematical connection
between these expectations and solutions to convection-diffusion-
reaction equations. This key theorem is stated in for example [59, 68,
80] and has been outlined in Appendix B.
The topic of domain truncation is addressed for example in [54, 92].
 3
Spatial Discretization I

3.1 Method of Lines

For the numerical solution of initial-boundary value problems for
convection-diffusion-reaction equations (2.1) the method of lines
(MOL) forms a flexible and versatile approach. It is widely employed
in practice and is popular in particular in computational finance. The
MOL consists of two general, consecutive steps:

(S) discretization in the space variable s,

(T) discretization in the time variable t.

Step (S) is referred to as spatial discretization or semidiscretiza-

tion. In this step the initial-boundary value problem for the PDE is
discretized on a finite grid in the s-domain. This leads to an initial
value problem for a (large) system of ODEs, the so-called semidiscrete
system. Step (T) is referred to as temporal discretization. Here the
semidiscrete system is discretized on a finite grid in the t-domain
and defines the actual, fully discrete approximations on the obtained
Cartesian grid in the (s, t)-domain. A sample (s, t)-grid is shown in
Figure 3.1.
The present and the subsequent two chapters deal with step (S).
We shall discuss several basic semidiscretizations of initial-boundary
value problems for PDEs (2.1). In this chapter we commence with the

© The Author(s) 2017 15

K. in ’t Hout, Numerical Partial Differential Equations in Finance Explained,
Financial Engineering Explained, DOI 10.1057/978-1-137-43569-9_3
Exploring the Variety of Random
Documents with Different Content
 IV

When Burgess appeared at the bank at ten o'clock the next

morning he found his friends of the night before established in the
directors' room waiting for him. They greeted him without their usual
chaff, and he merely nodded to all comprehendingly and seated
himself on the table.
"We don't want to bother you, Web," said Colton, "but I guess
we'd all feel better if we knew what happened after we left you last
night. I hope you don't mind."
Burgess frowned and shook his head.
"You ought to thank God you didn't have to see the rest of it! I've
got a reservation on the Limited tonight: going down to the big city
in the hope of getting it out of my mind."
"Well, we know only what the papers printed this morning," said
Ramsay; "a very brief paragraph saying that Avery had been
pardoned. The papers don't tell the story of his crime as they usually
do, and we noticed that they refrained from saying that the pardon
was signed at one of your dinner parties."
"I fixed the newspapers at the governor's request. He didn't want
any row made about it, and neither did I, for that matter. Avery is at
my house. His wife was there waiting for him when I took him
home."
"We rather expected that," said Colton, "as we were planted at
the library windows when you left the club. But about the other
man: that's what's troubling us."
"Um," said Burgess, crossing his legs and clasping his knees.
"That was the particular hell of it."
"Tate was guilty; we assume that of course," suggested Fullerton.
"We all saw him signing his death warrant right there at the table."
"Yes," Burgess replied gravely, "and he virtually admitted it; but if
God lets me live I hope never to see anything like that again!"
 He jumped down and took a turn across the room.
"And now—— After that, Web?"
"Well, it won't take long to tell it. After the governor signed the
pardon I told the warden to take Avery downstairs and get him a
drink: the poor devil was all in. And then Tate came to, blubbering
like the vile coward he is, and began pleading for mercy: on his
knees, mind you; on his knees! God! It was horrible—horrible
beyond anything I ever dreamed of—to see him groveling there. I
supposed, of course, the governor would turn him over to the police.
I was all primed for that, and Tate expected it and bawled like a sick
calf. But what he said was—what the governor said was, and he said
it the way they say 'dust to dust' over a grave—'You poor fool, for
such beasts as you the commonwealth has no punishment that
wouldn't lighten the load you've got to carry around with you till you
die!' That's all there was of it! That's exactly what he said, and can
you beat it? I got a room for Tate at the club, and told one of the
Japs to put him to bed." "But the governor had no right," began
Ramsay eagerly; "he had no right——" "The king can do no wrong!
And, if you fellows don't mind, the incident is dosed, and we'll never
speak of it again."
 [5]From Best Laid Schemes, Copyright, 1919, 1922, by Charles
Scribner's Sons. By permission of the publisher.

H. C. WITWER
 FOREWORD

I have selected "Money to Burns" as my best effort because the

situations and characters in that story appealed to me more than
any others I've created in some three hundred odd yarns. The "gold-
digging" young lady of the chorus, the super-sophisticated bellboy
with his hard-boiled philosophy, and the beautiful, cynical Goddess
of the Switchboard, are all familiars of mine. Intimate with their
habits, characteristics, mannerisms and vocabulary, I had only to
create a central plot and push them bodily into it. After that, writing
the story was merely a case of conscientious reporting—it almost
wrote itself!
The genesis of "Money to Burns" was some envious remarks of a
bellboy in discussing the sensational escapades of a certain young
millionaire. The boy, bringing ice water to my room in a hotel,
pointed to the glaring headlines in a newspaper that told of the
gilded youth's latest adventure, and bitterly bemoaned the fate that
made him a bellboy and the other a millionaire. He discoursed on
what he would do were he the possessor of wealth, etc. I
encouraged his conversation, with a story forming itself before my
eyes. When he left the room I put his counterpart on paper, gave
him wealth, added the other characters and necessary
embellishments, carved out the title which I hoped would attract the
reader's interest and—there you are!
As to how I work—one word pretty well covers that question. The
word is "HARD!" I try to get interesting characters and titles first of
all; after that, plots. The characters are always people I know well.
The plots may come from any source—things that have happened to
me, a chance remark of some individual, a newspaper headline, an
adventure I would relish having myself, etc.
 To a beginner I would advise a thorough reading of the popular
magazines, a shot at the newspaper game if possible, plenty of clean
white paper and a resolution to take lots of punishment. Thais all I
would presume to advise—and I may have given an overdose
already!

MONEY TO BURNS[6]

By H. C. WITWER

"When fortune favors a man too much, she makes him a fool!"
Neither Napoleon, Nero, Alexander, Jack Johnson, Mark Antony
nor Bill Hohenzollern was the composer of that remark, though,
honest, I bet they all thought it about the time the world was giving
them the air. However, the boy who originally pulled the above wise
crack was Mr. Publius Syrus, a master mind current in dear old Syria
during the fiscal year of 77 B.C. Two thousand annums after Publius
gave up the struggle, Jimmy Burns, a professional bellhop—age,
twenty; color, white; nationality, Broadway-American—decided to
find out for himself whether or not Pubby's statement was true. It is!
Loll back in the old easy chair for about approximately a half-hour
and I'll do my stuff. Perhaps you don't know me, as Eve coyly
remarked to Adam, so taking advantage of your good nature I'll
introduce myself. I'm Gladys Murgatroyd, a switchboard operator at
the Hotel St. Moe. I was slipped into the cradle under the name of
Mary Ellen Johnson, but as that smacks more of the kitchen than the
drawing-room, I changed that label some time ago to the Gladys
Murgatroyd thing, which I admit sounds phony—still, I'm a phone
girl, so what could be sweeter?
However, one morning during a slight lull in the daily hostilities
between me and the number-seeking guests, I am reading my
favorite book—the Morning Squawk, the newspaper that made the
expression "It is alleged" famous, or maybe it was the other way
around. Spattered all over the front page is a highly sensational
account of the latest adventures of one of these modern prodigal
sons—in round numbers, Carlton Van Ryker, whose father celebrated
his ninety-fifth birthday by entering a tomb in a horizontal position
and leaving his only progeny two paltry $500,000 bank notes. The
young millionaire with the name like a Pullman car and a soft collar
had been stepping high, wide and fast with his pennies and at the
time of going to press was the plot of an "alienation of my wife's
affections" suit, a badly mismanaged shooting affair, and various
other things that would keep his mind off the weather for quite a
spell. While I'm drinking all this in with my lustrous orbs, along
comes Mons. James Joseph Aloysius Burns, who was either the hero
of this episode in my exciting career, or else he wasn't.
Although I've known Jimmy Burns for the worst part of two years,
we're still good friends, both of us being refugees from the land of
Utah. My home town was the metropolis of Bountiful, where I once
won a beauty contest single-handed, and James fled from Salt Lake
City, where smoking cigarettes is the same as throwing rocks at the
President, in the eyes of the genial authorities.
But to get to the business of the meeting—Jimmy sported a
sarcastical sneer as he approached my switchboard on this particular
morning.
"Kin you feature a cuckoo like this dizzy Van Ryker havin' all that
sugar," he snorts, nodding angrily at the newspaper, "whilst us
regular white folks is got to slave like Uncle Tom or we don't eat? Is
that fair?"
 "Cheer up, Jimmy," I says with a smile. "We don't get much
money, that's a fact, but then we can laugh out loud. That's more
than Van Ryker can do! Look at the pushing around he's getting
because he hauled oil and inherited a million, poor fellow; he——"
"That mug was ru'ned by too much jack!" butts in Jimmy. "He's
what you call a weak sister. He wasn't built to handle important
money—you got to be born that way! Knowin' how to spend money
is a gift. I got the gift, but I ain't got the money!"
"And you never will have the money, frittering away your life
hopping bells in a hotel, Jamesy—not to give you a short answer," I
says. "When they assembled you they left out the motor—ambition!"
"Blah!" says Jimmy courteously. "That's what you think. I got
plenty ambition. My ambition is to wake up every morning for the
rest of my life with a twenty-dollar bill in my kick! Believe me, Cutey,
I often wish I was a Wall Street bond messenger, a bootlegger or
even a professional reformer—but I ain't never had a shot at no big
dough like that. Why, if it was rainin' tomato bouillon, I'd be there
with a knife instead of a spoon!"
"As if that would stop you!" I remark sweetly. I once saw James
eat. "It seems to me you're always craving excitement," I went on,
dealing out some wrong numbers. "Only last week you told me you
had a massage."
"Go ahead and kid me," says Jimmy. "You should bite your nails—
you're a woman, a good looker with more curves than a scenic
railway, and they ain't no way you kin lose! But it's different here. It
seems to me I beep workin' for a livin' since the doc says 'It's a boy!'
and the chances is I'll be workin' for a livin' till the doc says 'Get the
embalmer'!"
Don't you love that?
"Why don't you check out of the bell-hopping game and try your
luck at something with a future in it?" I ask him, though, really, I'm
about as interested in Jimmy's biography as I am in the election
returns at Tokyo. "If I was a man, this town wouldn't have me
licked!"
"Apple sauce!" sneers Jimmy politely. "A guy without money has
got the same chance in New York as a ferryboat salesman would
have on the Sara Desert. It takes jack to make jack. With a bank roll
I could make my name as well known as Jonah's, and I'd spot him
his whale!"
"What do you do with your nickels?" I ask him. "I don't doubt that
Chaplin and Fairbanks get more wages than you bellboys, but I
thought your tips ran into better figures than they have in the
Follies."
"Say, cutey, be yourself!" says James scornfully. "Most of the eggs
in this trap is as tight as the skin on a grape—they wouldn't give a
thin dime to see Tut-ankh-Amen walk up Fifth Avenoo on his hands!
I could be railroaded to Sing Sing for what I think of them babies.
Why should I have to carry suitcases and hustle ice water for a lot of
monkeys like that?"
"Don't put on dog, Jimmy," I smile. "The guests of the St. Moe
are every bit as good as you are, even if you are a haughty bellhop
and they are lowly millionaires. Suppose you had a million, what
would you do with it?"
"Well," says Jimmy thoughtfully, "the first thing I'd do wouldst be
to get me a education—not that I'm no dumb Isaac by no means,
but they's a few lessons like algeometry, matriculation, mock
geography and the like which I could use. I wouldn't get all tangled
up with no wild women or pull none of the raw stuff which this Van
Ryker jobbie done, that's a cinch! They'd be no horseplay what the
so ever, as far as I was concerned. What I'd do wouldst be to crash
into some business, make my pile and my name and not do no
playin' around till I was about fifty and independent for life. Ain't it a
crime when I got them kind of intentions to make good and no
nonsense about it, that somebody don't slip me a million?"
 "It's an outrage, Jimmy," I agree, allowing a giggle to break jail.
"Still, all men are born equal and if it's actually possible that you
haven't got a million, why, you must have thrown your chances
away. When Eddie Windsor was your age, for instance, he had made
himself Prince of Wales!"
"Me and him begin life in a different type of cradle!" says Jimmy.
"And that stuff about everybody bein' equal when they're born is the
oyster's ice skates. The only way me and them wealthy millionaires
was even at birth is that we was all babies!"
This debate between me and Jimmy was about like Adam and a
monkey arguing over which of 'em was our first ancestor—we could
have found plenty of people to side with both of us. Then again, the
customers was beginning to snap into it for the day and craved the
voice with the smile. I got as busy at the switchboard as a custard
pie salesman on a movie comedy lot, so I gave the money-mad
James the air for the time being.
A couple of weeks later, or maybe it was a jolly old fortnight, Hon.
Guy Austin Tower returns from a voyage to Europe, and then the fun
began! Maybe you all haven't had the unusual pleasure of meeting
my boy friend, so with your kind permission I'll introduce him.
This handsome young metropolitan sheik is a millionaire of the
first water, a full-blooded playwright, one of my wildest admirers,
and a guest at the Hotel St. Moe. Guy would be a face card in any
deck—he's a real fellow, no fooling. Even the parboiled Jimmy Burns,
who thinks everybody guilty till proved innocent, is one of Guy's
fans. Guy just sprays Jimmy and the rest of the hired help with
princely tips and doesn't dime them to death, as most of the other
inmates do.
Like Carlton Van Ryker, Guy was left about everything but Lake
Michigan when his male parent entered the obituary column, but
unlike Van Ryker, Guy didn't let his millions make him a clown. He
wanted to carve his own way on our popular planet, so he simply
forgot about his warehouse full of doubloons and took up the trade
of writing plays. As he's got two frolics running on Broadway now,
you could hardly call him a bust.
Well, when Guy came back from overseas he got a welcome from
the St. Moe staff that would have tickled a political boss. Honestly,
he brought something back for everybody! What he brought back for
me was some perfectly gorgeous Venetian lace and his sixty-fifth
request that I renounce the frivolous pleasures of the telephone
switchboard and enter matrimony.
I accepted the lace, which drove my girl friend, Hazel Killian, wild
with envy, but on the wedding bells I claimed exemption. I like Guy,
but I'm by no means in love with him—or with anyone else! From
what I've been able to observe on my perch at the St. Moe
switchboard, there's a bit too much "moan" in matrimony, and,
really, I get no more thrill out of contemplating marriage than Noah
would get out of contemplating Niagara Falls. I've seen too much of
it! I do get a kick, though, out of my daily struggle to remain a
campfire girl and still keep from dying of too little fun. The swarming
lobby of any costly Gotham hotel is the favorite hunting grounds of
snips that pass in the night, always looking for the best of it—lounge
lizards, synthetic sheiks of all ages and others too humorous to
mention. Any young, well dressed member of my much advertised
sex who doesn't resemble a gorilla is their legitimate prey, and trying
to discourage 'em is like trying to discourage the anti-drys. But I got
their number—being a phone girl, that's my job, isn't it? I meet five
hundred representatives of the sillier sex every day, and it's a hobby
of mine to treat 'em all with equal chilly politeness till they get out of
line. Then I turn off the politeness, just giving 'em the chill, and
honest, when I want to be cold—which is generally—I'd turn a four-
alarm fire into an iceberg with a glance!
However, there are a lot of yawns connected with plugging a
telephone switchboard day by day in every way, and now and then a
male will come along sufficiently interesting for little Gladys to
accept temporarily as an accomplice in the assassination of time.
 Dinners, dances, theaters, this and that—nothing my mother and
I couldn't laugh over, so don't curl your lip!
Well, Guy Tower hadn't been back in the St. Moe a week when he
began showering attentions on me from the point where he left off
before he sailed away. Honestly, he dinnered and theatered me silly!
Hazel Killian watched me carelessly toy with this good-looking young
gold mine with unconcealed feelings of covetousness. She simply
couldn't understand why I didn't grab this boon from Heaven and
marry him while he was stupefied with my charms. Hazel, who is an
artists' model and no eyesore herself, is suffering from a lifelong
ambition to become a bird in a gilded cage. She craves a millionaire,
and in desperation she offered to match coins with me for Guy, but I
indignantly refused. I know Hazel—she's a dear, but she'd have
Rockefeller penniless in a month and every shop on Fifth Avenue
sporting a "Closed to Restock" sign. She's just a pretty baby who
loves to go buy and she makes 'em give till it hurts, don't think she
doesn't!
Another person who got upset over Guy's inability to keep away
from me was Jerry Murphy, house sleuth at the St. Moe. Jerry's so
big that if he had numbers on him he'd look like a box car, and he's
just another male I can get all dizzied up with a properly
manipulated eye and smile. Really, he's not a bad fellow, but as a
detective he's a blank cartridge. He couldn't catch pneumonia if it
was against the law not to have it. Jerry don't know what it's all
about and never will, because he's too thick between the ears to ask
and nobody will tell him. He hangs around my switchboard like a
hungry collie around a kitchen and he's just as eager; but I'm not
collecting losers, so Jerry's meaningless to me. My bounding around
with Guy fills Jerry with pain and alarm and he keeps me supplied
with laughs by constantly warning me of the pitfalls and temptations
that surround a little telephone girl who steps out with a millionaire.
"If 'at big mock orange makes one out-of-the-way crack to you,
cutey, just tip me off and I'll ruin him!" says Jerry with a menacing
growl. "I can't cuddle up to the idea of you goin' out with him all the
time. Don't let him go to work and lure you somewheres away from
easy callin' distance of help!"
"Cut yourself a piece of cake!" I says. "Mister Tower is a perfect
gentleman, Jerry, and it would be impossible for him to act like
anything else if he and I were alone on an island in the middle of the
Pacific."
"Say, listen, cutey,'" says Jerry, wincing, "don't mention 'at alone-
on-a-island stuff in my presence! 'At's what I been dreamin' about
me and you for a year. If we ever get on a ship together, I'll wreck it
as sure as you're born!"
Now, isn't he a scream?
Well, at one of our dinner dates about a month after his return,
Guy shows up haggard and wan and apparently all in. Generally a
fellow who couldn't do enough for his stomach, he ordered this night
with the enthusiasm of a steak fiend week-ending at a vegetarian
friend's. When the nourishment arrived, Guy just dallied and toyed
with it. Afterwards we favored the dance floor with a visit, and
instead of tripping his usual wicked ballroom he acted like he had an
anvil in each of his pumps. A dozen times during the evening he had
to tap back a yawn, and really I began to get steamed up. I'm not
used to seeing my boy friends pass out on me!
"I hope I'm not keeping you awake, Mr. Tower," I remarked
frigidly as we returned to our table and the nineteenth yawn slipped
right through his fingers, in spite of his well meant attempt to push
it back.
"Forgive me!" says Guy quickly, and a flush brings some color to
his face for the first time that night. "I—the fact is, Gladys, I don't
believe I've had a dozen hours' sleep in the past week!"
"Then you've been cheating," I smile, "for you've always left me
around midnight. Is she a blonde or a brunette, or have you
noticed?"
Guy laughs and, leaning over, pats my hand.
 "As if I would ever notice any girl but you!" he says, getting
daringly original. "Oh, it isn't a girl, Gladys—though there is a
woman at the bottom of the thing, at that. I'll explain that
paradoxical statement. Rosenblum wants my next play to open his
new Thalia Theater, which will be completed within two months—
and I haven't the ghost of an idea, not the semblance of a plot! I've
paced the floor like a caged animal, smoking countless cigarettes
and drinking oceans of black coffee. I've written steadily for hours at
a stretch and then torn the whole business up in disgust. That's
what's kept me awake at night—that and my daily battles with this
infernal Rosenblum!"
"How come?" I ask him in surprise. "I don't see the percentage in
battling with the man who puts your plays on Broadway, Guy."
"He wants me to write a risqué farce, one of those loathsome—er
—pardon me—bedroom things for Yvette D'Lys," says Guy angrily,
"and I ab-so-lute-ly will not do it! I refuse to prostitute my art for
the sordid box office! I——"
"Hold everything!" I butt in. "Shakespeare wasn't below writing
bedroom farces, and I think even you'll admit that he got some
favorable mention as a playwright."
"Shakespeare write a bedroom farce!" gasps Guy. "Why, my dear
girl, you—which of his marvelous plays could you possibly twist into
that?"
"Othello," I says promptly. "In act five they clown all over the
boudoir! You should go to the theater oftener."
For a second Guy looks puzzled, then he grins and the lines
around his navy-blue eyes relax.
"You are delightful," he says. "If I cannot get mental stimulus
from you, then I am indeed uninspired! Nevertheless, I am not going
to do as Rosenblum requests. I have never written anything
salacious or even suggestive, and I never will! Furthermore, I don't
believe Miss D'Lys or any actress likes to play that kind of a part. It
is managers of the Rosenblum type that force those rôles on them—
callous, dollar-grabbing, cynical pessimists, who take it for granted
that all women are bad!"
"Any man who takes it for granted that all women are bad is no
pessimist, Guy," I says thoughtfully. "He's an optimist!"
"Great!" says Guy, slapping the table with his hand. "May I use
that epigram in my play?"
"I'll loan it to you," I tell him. "If I break out with the writing rash
myself some day, I'll want it back. And now let me hear some of the
ideas you tore up in disgust—maybe one of them is the real McCoy.
Trot 'em out and I'll give you my honest opinion."
Well, he did and I did. Guy rattled off a half-dozen plots, which
failed to thicken and merely sickened. Honestly, they had everything
in 'em but the Battle of Gettysburg, and really they were fearful—
about as new and exciting as a beef stew, which is just what I told
him, being a truthful girl.
Guy sighs and looks desperate.
"Gladys," he says, "I simply must have a play ready to open the
Thalia in less than eight weeks! You know that my interest in
playwriting is anything but mercenary—good heavens, I have more
money than I know what to do with. What I want is to see my name
on another Broadway success, and I'm absolutely barren of ideas!
I've simply struck a dry spell, such as all writers do, occasionally. At
this moment I'd give twenty-five thousand dollars for an original
plot!"
I drew a deep breath and stared at him.
"Don't kid about that kind of money, Guy," I says solemnly. "And—
don't tempt me!"
"I never was more serious in my life!" he quickly assures me.
"Why, have you an idea? By Jove, Gladys, if you if have—you are the
goddess from the machine——"
 "Be of good cheer," I interrupt. "I'll go home and sleep over
matters, which is what you better do, too—you look like you fell out
of a well or something, really! I'll see you tomorrow. I don't think I'll
have a plot for you by then, but——"
"Naturally—still, if you even have a suggestion that I might use,"
says Guy eagerly, "I——"
"I say I don't think I'll have a plot by then, I know I'll have one!" I
finish.
And I did, really!
When I got home that night I went right to bed, but somehow Mr.
Slumber and me couldn't seem to come to terms. My brain just
refused to call it a union day but kept mulling over Guy and his
magnanimous offer of twenty-five thousand lire for a plot. Good
heavens, he could buy a plot with a house and barn on it for that!
Then my half-sleepy mind turns to Jimmy Burns, the gloomy bellhop,
whose deathless ambition is to corral a fortune and dumfound
Europe with his progress from then on! Suddenly these two trains of
thought collide with a crash and out of the wreck comes an idea that
I think will make Jimmy Burns famous and give Guy Tower his play!
That trifling matter being all settled, I turned over and slept the
sleep of the just.
The very next evening I propositioned Guy, who listened with
flattering attention. After telling him I had his play all set, I furnished
him with a short but interesting description of the life, habits and
desires of James Joseph Aloysius Burns. I then proposed that Guy
place his twenty-five thousand to the bellboy's credit for one month,
James to be allowed free rein with the jack. If Burns has increased
the amount at the end of thirty days, he is to return the original
twenty-five thousand to Guy. If not, he must give back whatever
amount he has left. All the principals are to be sworn to secrecy and
that's all there is to my scheme—it's as simple as the recipe for hot
chocolate!
 "If Jimmy Burns is really miscast in life and has a brain and
business ability far above hopping bells," I explain, "why, the use of
twenty-five thousand for thirty days might make him one of the
world's most famous men! It's a sporting chance, Guy—will you
gamble?"
Guy looks somewhat perplexed. He stares into my excited face
and clears his throat nervously.
"Well—I—of course, I am interested in anything you suggest,
Gladys," he says. "I—eh—suppose I am unusually stupid this
evening, but I cannot see how my dowering this bellboy will assist
me in writing my play."
"Listen," I says. "You claimed you'd put out twenty-five thousand
for a plot, didn't you? Well, believe me, the movements of Jimmy
Burns with twenty-five thousand dollars to do what he wants with
will supply all the ideas you can handle—if you don't think so, you're
crazy!"
"But——" begins Guy.
"Don't butt!" I cut him off, impatiently. "You're not the goat yet
and you won't be if you listen to teacher. All you have to do is give
Jimmy the sugar, watch his stuff for the next thirty days, and you'll
get a true-to-life masterpiece for your drama—probably a play that
will show the making of a financial, scientific or artistic Napoleon! If
you can't get a play out of the effect of sudden wealth on a lowly
bellhop, then you got no business In the same room with a
typewriter!"
Guy rubs his chin, smooths back his wavy hair and gazes out of
the window at New York City.
"By Jove!" he busts out suddenly, slapping his hands together.
"The thing is fantastic—grotesque—but I'll do it!"
So it came to pass that the next day Guy, Jimmy Burns, and
myself met by appointment in the cashier's office of the Plumbers &
Physicians National Bank. As I was on my lunch hour and minutes
were at a premium, there was little time squandered on
preliminaries, Guy making his proposition to the thunderstruck
James in simple words of one syllable. At first M. Burns refused to
believe he wasn't being kidded, then he got hysterical with delight.
When the startled cashier solemnly asked for his signature and
handed him a bank book showing there was $25,000 to his credit in
the vaults, Jimmy broke down and cried like a baby!
"Now listen to me, young man," I tell the panting Burns when he
has hid the bank book in his shoe to the open amusement of Guy
and the wondering cashier. "You want to get an immediate rush of
brains to the head and make that twenty-five thousand mean
something, because that's the last you get if you cry your eyes out!
That's all there is, there isn't any more, get me? You been going
around squawking about what a world-beater you'd be if you had
money. Well, now you got plenty of it and we look for big things
from you. No clowning, remember, you must make good! Is all that
clear?"
Still in a happy trance, Jimmy Burns removes his cap with a start.
"Ye-ye-yes, ma'am!" he gulps, the first time he was ever polite to
anyone, before or since.
Well, really, the effect of that $25,000 suddenly showered on
Jamesy was every bit as startling as I expected—only in a slightly
different way than I fondly hoped! Those pennies went right to his
shapely head, and instead of stimulating his brain, why, they just
removed it altogether. First of all, Jimmy got a wild and
uncontrollable desire to leave the art of bell-hopping flat on its back.
Not satisfied to resign his portfolio in a dignified way, he kidded the
guests, insulted the manager, rode Jerry Murphy till Jerry wanted his
heart, and wound up by punching Pete Kift, the bell captain, right on
the nose. By an odd coincidence, these untoward actions got Jimmy
the gate.
The plutocrat bellhop's next imitation was to apply for the most
expensive suite in the hotel. They just laughed Hon. Burns off, telling
him there was nothing but standing room left in the inn and try to
get that! But Guy Tower came to the rescue and got Jimmy the
suite, as Guy wanted to keep his experiment under as close
observation as possible while making notes for his play. Once settled
in his gorgeous apartment, Jimmy swelled up like a mump and run
his former colleagues ragged getting him ice water, stationery,
telegram blanks and drug-store gin. He staggered around in the
most fashionable lobby in New York making cracks like "Hey, d'ye
think Prohibition will ever come back?" to astounded millionaires and
their ladies. Honestly, he was a wow I When one of the fellows he
used to work with called him "Jimmy," the nee bellboy angrily insists
that the manager fire him for undue familiarity, remarking, "A guy
has got to keep them servants in their proper places!"
He sent a wire to the Standard Oil Company asking if they
couldn't use a younger man in Rockefeller's place, paid the dinge
elevator pilots a dollar twenty times a day to stop the car and tie his
shoe laces, panicked the highest priced tailor in Manhattan by
ordering seven suits of "mufti," having read that the King of England
occasionally dresses in that, and generally misplayed his hand till
everybody was squawking and in no time at all Jimmy Burns was
about as popular as a mad deg in the St. Moe hotel. He failed to go
through college like he promised he would, but he certainly went
through everything else, and only for Guy, Jimmy would have been
streeted fifty times a day!
The next desire that attacks James is the ambition to see his
name in the newspapers, so he advertises for a press agent. The
first publicity purveyor who showed up made James think he was
good by using nothing but adjectives in his conversation and asking
for a honorarium of $250 the week. Mr. Burns thought the salary
was more than reasonable, but as he's the type that would ask
President Coolidge for a reference, he demanded one from the
candidate for the job. "You have asked the man who owns one—just
a minute!" says the press agent cheerily, and not at all abashed he
dashes out of the room. I heard all this when he stopped at my
switchboard with Jimmy and asked me where the writing room was.
In five minutes he's back, waving a paper in Jimmy's face. "Look
that over!" he says.
James read it out loud for my entertainment. According to this
testimonial, the bearer had did about everything in the publicity line
but act as press representative for a school where middle-aged
eagles are taught how to fly. James seems to get quite a kick out of
it.
"I think I'll take this guy," he remarks, as he looks up from the
reference.
"Fine!" says the delighted applicant. "That's a good thought. I'll
snap right into it and——"
"Tomato sauce!" butts in James sneeringly. "I don't wish no part
of you, the baby I want to hire is the bozo which wrote this
recommendation of you. He's good, what I mean, a letter-writin'
idiot!"
"A bit odd that we should both be thinking the same thing," says
Mr. Press Agent coolly. "As a matter of fact, I wrote that
recommendation myself. So now that I'm engaged as your publicity
expert, let me have a few of your photos and——"
The following morning nearly every front page in town displayed a
picture of James Burns and this glaring headline:

BELL BOY LEFT MILLION BY GUEST

HE ONCE LOANED DIME!

That was the press agent's first effort and, as far as I was ever
able to see, his last. But it got ample results, as with your permission
I'll be glad to show you.
Within a week, Jimmy Burns had discovered what millions have
discovered before his little day—that the mere possession of lucre
does not mean happiness, and for some it means positive misery!
Not only did James become the prey of the charity solicitors,
confidence workers, stock swindlers, "yes men," phony promoters
and other parasites that infest the hotel, but he was constantly in
boiling water through his cuckoo escapades growing out of sudden
wealth that sent his brains on location. After purchasing a diamond
as big as Boston, only brighter, he bought the highest priced
horseless carriage he could find in the market and the same identical
day it slipped out of his hands and tried to climb the steps of the
Fifth Avenue library. The gendarmes pinched him for reckless
driving, though Jimmy protested that it wasn't really "wreckless" as
he had plenty wreck, and his worship tossed the trembling James
into the hoosegow for three days, remarking, "I'll teach you rich men
a lesson!" Then the income-tax beagles read that newspaper
headline and came down on Burns like a cracked ceiling. So all in all,
Jimmy was finding few chuckles connected with his pieces of eight.
When the rich but unhappy James got out of the Bastille, he
decided to throw a party in his costly suite at the St. Moe for his
former associates of the bellhops' bench. As Jimmy confided to me,
apparently his only friend, he felt the immediate need of mixing with
people who spoke his language. He wanted to forget his troubles
and get back on a friendly footing with the boys, who had severed
diplomatic relations with him on account of his acting like he was
Sultan of Goitre or something when he became a thousandaire
overnight. Jimmy felt that a first-class soiree would do the trick.
The party came off as advertised, but all it meant to the poor little
rich man was more grief! It was really a respectable enough affair,
no hats being broken or that sort of thing, and a pleasant time was
had by all with the slight exception of the charming host. Our hero
made two fatal mistakes. The first was not inviting Jerry Murphy and
the second was laying in a stock of canny Scotch for medicinal
purposes, in case any of his guests should get stricken with the
dread disease of thirst. The result was that an epidemic of parched
throats broke out early in the evening and pretty soon the other
habitues of the St. Moe began complaining bitterly about the
unusually boisterous race riot that was being staged with a top-
heavy cast on the sixth floor. Mr. Williams, the manager, who liked
Jimmy Burns and arsenic the same way, called upon Jerry Murphy to
quell the disturbance and Jerry licked his lips with delight. The man-
mountain house detective run all the way upstairs, figuring the
elevators too slow to whisk him to a job as tasty to him as cream is
to puss. Jerry pounded on the door of Jimmy's salon and demanded
admittance. Recognizing his voice, James climbed unsteadily on a
chair, opened the transom and peered with a rolling eye at Jerry.
"Go roll yer hoop—hic—you big shtiff, thish is gen'lemen's—hic—
gen'lemen's blowout!" says Jimmy, carelessly pouring a pitcher of
water, cracked ice and all, on Jerry's noble head. "Hic—shee kin you
laugh off!"
Foaming at the mouth and uttering strange cries, the infuriated
Jerry broke through the door and the panic was on! The beauty and
chivalry present fled before the charging sleuth like they'd flee
before a charging hippo, but the unfortunate Jimmy got left at the
post. After cuffing him around the room till the sport palled on him,
Jerry dragged James off to durance vile and once again Jamesy is
put under glass, this time credited with illegally possessing spirits
frumenti. They held him under lock and key all night and it took all
of Guy Tower's influence and quite a few of his quarters to get Jerry
to withdraw the charge and free Jimmy the next morning.
Well, honestly, I felt sorry for Jimmy Burns, who was certainly
taking cruel and unusual punishment and being made to like it. I
thought perhaps if I injected a lady into the situation it might make
things a bit more pleasant for him, so I introduced Hazel Killian to
the "millionaire bellboy," as the newspapers were still calling James.
O sole mia! as they say in Iowa, what an off day my brain was
having when it cooked up that idea! With visions clouding her
usually painstaking taste, of the Riviera, Paris, Monte Carlo, gems,
yachts, Boles-Joyce limousines or what have you, Hazel took to
Jimmy like a goldfish takes to a bowl and our evening expeditions
now consisted of your correspondent and Guy, assisted by Hazel and
Jimmy. We went everywhere together, with James insisting upon
paying most of the bills. But while Jimmy was civil enough to the
easy-to-look-at Hazel, he simply showered his attentions on your
little friend Gladys, grabbing every chance to make the most violent
love to me. This greatly annoyed Guy and Hazel and equally greatly
amused me—Jimmy was just a giggle to me, not a gasp!
In the meanwhile, Mr. Williams and Jerry Murphy had banded
together to make James sick and tired of living in the Hotel St. Moe.
He seldom found his room made up, there was always something
wrong with the lights, the water and the steam, none of the help
would answer his bells, and when he hollered for service he was told
he would find it in the dictionary under S. But Pete Kift pulled the
worst trick of all on him. With the radiant Hazel on his arm and Guy
keeping military distance behind, Jimmy was proudly strutting
through the lobby one fine evening. All were resplendent in evening
clothes, and to show you I'm not catty I'll say that Hazel in an
evening gown would attract attention away from the Yosemite. As
the party neared the desk, Pete Kift suddenly looks at Jimmy and
bawls "Front!" at the top of his bull elephant's voice, and
mechanically responding to the habit of a lifetime, poor Jimmy Burns
grabs an amazed guest's suitcase and hastily starts for the elevator!
The witnesses just screamed when they grasped the situation and
recognized James as the ex-bellhop. Even Guy smiled, but it was
different with Hazel, who could have shot down Mr. Burns on the
spot in cold blood. As for Jimmy, well, honestly, he would have
welcomed the bullet!
Nevertheless, in spite of this fox pass Hazel believed Jimmy had
actually inherited an even million, and evidently James had not gone
out of his way to make her think different. So one day Hazel tells me
she's all through posing for artists and is determined to make Jimmy
her very own. When she adds that he has sworn to star her in a
musical comedy or back her in a movie production, I nearly passed
out! Can you imagine Jimmy, with only a few thousand left, making
any such maniacal promises as that to a girl with a memory like
Hazel's? Oo la la, what a fine disturbance James was readying
himself for!
 As I had vowed to say nothing about how Jimmy got his bankroll,
I couldn't very well give the ambitious Hazel the lowdown on
matters, but I did try most earnestly to lay her off him. I got
nowhere! Refusing to be warned, Hazel point-blankly accused me of
having a yen for Jimmy myself, and then she set sail for this gilded
youth in dead earnest.
Well, knowing nothing of Hazel's plans with regard to himself, the
doomed Jimmy kept on entertaining like his first name was Astor, his
middle name Vanderbilt and his last name Morgan. He took me,
Hazel and Guy to the races at Belmont Park and stabled us all in a
box. As James had loudly declared that he knew more about horses
than Vincent Ibanez, we all played his-feed-box tips for five races
and we learned about losers from him. When the sixth and last
scramble arrived, Guy had donated $1,500, I had sent in $50, and
Hazel had parted with $80 to the oral books and was fit to be tied I
What Jimmy lost, nobody knows. Anyhow, he gazed over the
program for the sixth race, a mile handicap, and suddenly let out a
yell.
"Hot dog!" he says, much excited. "Here's where we all get
independent for life. They's a beagle in this dash by the name of
Bellhop and if that ain't a hunch then Pike's Peak's a pimple. Get
down on this baby with the family jools and walk outa here rancid
with money!"
We split a contemptuous grin between us and presented it to
Jimmy before getting down on the favorite in a last attempt to break
even on the day. Jimmy milled his way back to our box, flushed and
panting, and gayly announced that he had shot the works on
Bellhop's nose. He said we were all paranoiacs for not doing the
same. Well, it was all over in a twinkling! The favorite found the
handicap of our bets a bit too much and finished an even last.
Bellhop tripped the mile in something like 0.96 and won from here to
the Ruhr, clicking off $15,000 for Mr. James Joseph Aloysius Burns.
James then announced his intention of buying the horse and
presenting it to Hazel for Arbor Day, and it was only with the
greatest of difficulty that me and Guy talked him out of it. Hazel
gave us a murderous glare and for the rest of the day you couldn't
have got a nail file between her and Jimmy, honestly!
Whirling back to New York in Jimmy's car, now steered by a
uniformed chauffeur, I began to reprove James for this gambling and
stepping out when he should be using his money and time to secure
his future. What about all his promises to me? How about all the big
things he was going to do? When was he going to enter business, or
whatever he thought he could do best?
"Don't make me laugh!" says Jimmy, tapping an imported
cigarette on a solid gold case. "I'm sittin' pretty. What a sucker I'd be
to pester myself about work when I got all this sugar!"
"Of course," says Hazel, nestling closer to him. "Imagine a
millionaire working!"
And the only thing that really burned me up was Jimmy's grin at
Guy and the sly dig in the ribs he gave me, the little imp!
Well, from then on Jimmy had lots of luck and all of it bad. The
fellow who invented money was a clever young man, but he really
should have stayed around the laboratory for another couple of
hours and invented an antidote for the trouble it brings. The well-to-
do ex-bellhop used his jack as a wedge to get into one jam after
another, till finally came the worst blow of all, and Miss Hazel Killian
delivered it.
It seems that Hazel got fatigued waiting for Jimmy to unbelt the
roll and star her in a musical comedy or a super-production, so she
requested a showdown. Jimmy checked up and discovered he had
blown all but about five thousand of his ill-gotten gains, and as
trustworthy reports had reached him that it would take about ten
times that much to group a show around the beauteous Hazel, he
calmly told her all bets were off. Hazel promptly fainted, but Jimmy's
idea of first aid being an alarmed glance and a dash for the door,
she quickly snapped out of it and demanded ten thousand dollars for
the time she put in entertaining him.
 "Aha—a gold digger, hey?" says Jimmy indignantly. "So you wish
ten grand for entertainin' me? Where d'ye get that stuff? They ain't
no ten thousand dollars' worth of laughs in you for me, I'll tell the
world! Take the air!"
Infuriated beyond speech, Hazel brought suit for $100,000
against James the following day, charging that promising young man
had promised to wed her. Further, deponent sayeth not!
That was the end of the high life for Jimmy Burns. Honestly, he
was scared stiff and he got little comfort from me, for I was
absolutely disgusted with the way he had carried on from the time
Guy gave him that money. Opportunity had knocked on this little
fool's door and he had pretended he wasn't at home. Not only that,
but I felt he had got me in wrong with Guy Tower, whose $25,000
investment for a plot now seemed a total loss. I told Guy tearfully
how sorry I was that my scheme had failed to pan out, but he cut
me off in the middle of my plea for forgiveness, his face a mass of
smiles.
"My dear girl, you owe me no apology," says Guy, patting my
shoulder. "It is I who owe you a debt of gratitude. I've written a
farce-comedy around Jimmy's adventures with the twenty-five
thousand, and Rosenblum predicts it will be the hit of the season!
I've never seen him so enthusiastic. Your idea was more than
successful, and Jimmy is welcome to whatever he has left of the
money when the time limit expires!"
Wasn't that lovely?
In the meantime, the miserable Jimmy had tried to forget his
worries again by mixing with his former fellow workmen about the
hotel. Jerry Murphy and Pete Kift wouldn't give him a tumble, so he
sat on the bellhops' bench all night, trying to square things with his
ex-playmates. But now that he was a "millionaire" they put on the
ice and treated him like a maltese would be treated at a mouse's
reception. A great longing comes over Jimmy to be a care-free
bellboy again, without the burden of wealth. He felt the irresistible
call of the ice water, the stationery and the tip! So, unable to lick the
temptation, he sneaked the baggage of a few guests upstairs and
was promptly run out of the hotel by the other boys for poaching on
their preserves. To make things perfect, a couple of days later he
was served with the papers in Hazel's suit.
Unable to cope with the situation and hysterical with fear, Jimmy
rushed to the switchboard and made an appeal to me that would
have melted a Chinese executioner. He placed the blame for the
trouble he was in on my georgetted shoulders—manlike—and
insisted that I had to get him out of the mess. The legal documents
Hazel had him tagged with smacked to the terrified Jimmy of pitiless
judges, stern juries, jail—perhaps even the gallows! Honestly, James
was in fearful shape, no fooling. I shut off his moans finally, and told
him to get rid of whatever money he had left and I would take on
myself the horrible job of explaining everything to Hazel. With a wild
whinny, Jimmy dashed out of the hotel without even thanking me,
gambled his remaining ducats in one wild stock-market plunge—and
two days later the ticker informed him that he was worth $25,000
again!
But money was now smallpox to Jimmy Burns. It was just three
weeks and four days since Guy Tower gave him the original $25,000,
and under the agreement Jimmy still had three days left to splurge.
Nothing stirring! What he wanted to do now was to get rid of his
wealth, as I had told him Hazel's barristers would never let her sue
him should they find out the defendant had no more nickels. Jimmy
wanted to go to law with Hazel the same way he wanted to part
with his ears, so he busts in on Guy and tells him to take back his
gold because he don't wish any part of it. Before the astonished Guy
can open his mouth, Jimmy hurls twenty-five one-thousand-dollar
bills on the table and flees the room!
Well, being an important customer of the St. Moe, Guy got Jimmy
back his old job hopping bells, broke, but happy for the first time in
a month. Then Guy insisted on me accepting a small royalty from his
play for producing Jimmy Burns as the plot. That left everybody
taken care of but the raging Hazel, who declared herself off me for
life and was packed and ready to leave me alone in New York. Guy
solved that problem and made Hazel crazily happy by engaging her
to play herself in his comedy, "Money to Burns." Merry Flag Day!

[6]Copyright, 1923, International Magazine Company

(Cosmopolitan Magazine)
*** END OF THE PROJECT GUTENBERG EBOOK MY STORY THAT I
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