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

[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.

[发布日期] 2017-05-15

[效力级别]  Proceedings Paper

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