High-order ADI scheme for option pricing in stochastic volatility models

JOURNAL OF COMPUTATIONAL AND APPLIED MATHEMATICS

卷:316

Article; Proceedings Paper

During, Bertram¹  Miles, James¹ 

[1] Univ Sussex, Dept Math, Pevensey 2, Brighton BN1 9QH, E Sussex, England

关键词: Option pricing;    Stochastic volatility models;    Mixed derivatives;    High-order ADI scheme;   

DOI  :  10.1016/j.cam.2016.09.040

来源: Elsevier

【 摘 要 】

We propose a new high-order alternating direction implicit (ADI) finite difference scheme for the solution of initial boundary value problems of convection diffusion type with mixed derivatives and non-constant coefficients, as they arise from stochastic volatility models in option pricing. Our approach combines different high-order spatial discretisations with Hundsdorfer and Verwer's ADI time-stepping method, to obtain an efficient method which is fourth-order accurate in space and second-order accurate in time. Numerical experiments for the European put option pricing problem using Heston's stochastic volatility model confirm the high-order convergence. (C) 2016 Elsevier B.V. All rights reserved.

【 授权许可】

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