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High-order compact finite difference schemes for option pricing in stochastic volatility models on non-uniform grids

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posted on 2023-06-09, 00:14 authored by Bertram Duering, Michel Fournié, Christof Heuer
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.

History

Publication status

  • Published

File Version

  • Accepted version

Journal

Journal of Computational and Applied Mathematics

ISSN

0377-0427

Publisher

Elsevier

Volume

271

Page range

247-266

Department affiliated with

  • Mathematics Publications

Research groups affiliated with

  • Numerical Analysis and Scientific Computing Research Group Publications

Full text available

  • Yes

Peer reviewed?

  • Yes

Legacy Posted Date

2016-02-11

First Open Access (FOA) Date

2016-02-11

First Compliant Deposit (FCD) Date

2016-02-11

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