Düring, Bertram and Miles, James (2016) High-order ADI scheme for option pricing in stochastic volatility models. Journal of Computational and Applied Mathematics, 316. pp. 109-121. ISSN 0377-0427
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Abstract
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.
Item Type: | Article |
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Keywords: | Option pricing; Stochastic volatility models; Mixed derivatives; High-order ADI scheme |
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: | Richard Chambers |
Date Deposited: | 01 Nov 2016 13:45 |
Last Modified: | 11 Sep 2017 05:41 |
URI: | http://srodev.sussex.ac.uk/id/eprint/65209 |
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📧 Request an updateProject Name | Sussex Project Number | Funder | Funder Ref |
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Novel discretisations for higher-order nonlinear PDE | Unset | Leverhulme | RPG-2015-69 |
DTA - University of Sussex 2013 (EPSRC) | G1142 | EPSRC-ENGINEERING & PHYSICAL SCIENCES RESEARCH COUNCIL | EP/L505109/1 |