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Propagation of electromagnetic waves through InP‐based integrated optics structures is directly simulated by solving the full vectorial wave equation in parabolic approximation for the transversal components Hx and Hy of the magnetic intensity vector H. A novel scheme based on the alternating‐directions split‐step finite‐difference technique in combination with the Crank Nicolson scheme is introduced providing exact treatment of the field quantities at the dielectric interfaces between waveguide core and cladding. The method described is applied to the solution of the fundamental mode in a buried rectangular dielectric waveguide and to the numerical optimization of a tapered matching structure.

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