Düring, Bertram, Fournié, Michel and Heuer, Christof (2014) High-order compact finite difference schemes for option pricing in stochastic volatility models on non-uniform grids. Journal of Computational and Applied Mathematics, 271. pp. 247-266. ISSN 0377-0427
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PDF (This is the final accepted version of: B. Düring, M. Fournié, and C. Heuer. High-order compact finite difference schemes for option pricing in stochastic volatility models on non-uniform grids. J. Comput. Appl. Math. 271 (2014), 247-266.)
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Abstract
We derive high-order compact finite difference schemes for option pricing in stochastic volatility models on non-uniform grids. The schemes are fourth-order accurate in space and second-order accurate in time for vanishing correlation. In our numerical study we obtain high-order numerical convergence also for non-zero correlation and non-smooth payoffs which are typical in option pricing. In all numerical experiments a comparative standard second-order discretisation is significantly outperformed. We conduct a numerical stability study which indicates unconditional stability of the scheme.
Item Type: | Article |
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Keywords: | High-order compact finite difference method; partial differential equation; mixed derivatives; option pricing |
Schools and Departments: | School of Mathematical and Physical Sciences > Mathematics |
Research Centres and Groups: | Numerical Analysis and Scientific Computing Research Group |
Subjects: | Q Science > QA Mathematics |
Depositing User: | Bertram During |
Date Deposited: | 11 Feb 2016 10:42 |
Last Modified: | 07 Sep 2017 10:06 |
URI: | http://srodev.sussex.ac.uk/id/eprint/59616 |
Available Versions of this Item
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High-order compact finite difference schemes for option pricing in stochastic volatility models on non-uniform grids. (deposited 23 Apr 2014 08:22)
- High-order compact finite difference schemes for option pricing in stochastic volatility models on non-uniform grids. (deposited 11 Feb 2016 10:42) [Currently Displayed]
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