An ETD Method for American Options under the Heston Model
[EN] A numerical method for American options pricing on assets under the Heston stochastic volatility model is developed. A preliminary transformation is applied to remove the mixed derivative term avoiding known numerical draw-backs and reducing computational costs. Free boundary is treated by the...
| Autores: | , , , |
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| Tipo de recurso: | artículo |
| Fecha de publicación: | 2020 |
| País: | España |
| Institución: | Universitat Politècnica de València (UPV) |
| Repositorio: | RiuNet. Repositorio Institucional de la Universitat Politécnica de Valéncia |
| Idioma: | inglés |
| OAI Identifier: | oai:riunet.upv.es:10251/161206 |
| Acceso en línea: | https://riunet.upv.es/handle/10251/161206 |
| Access Level: | acceso abierto |
| Palabra clave: | Heston model American option pricing Exponential time differencing Semi-discretization MATEMATICA APLICADA |
| Sumario: | [EN] A numerical method for American options pricing on assets under the Heston stochastic volatility model is developed. A preliminary transformation is applied to remove the mixed derivative term avoiding known numerical draw-backs and reducing computational costs. Free boundary is treated by the penalty method. Transformed nonlinear partial differential equation is solved numerically by using the method of lines. For full discretization the exponential time differen-cing method is used. Numerical analysis establishes the stability and positivity of the proposed method. The numerical convergence behaviour and effectiveness are investigated in extensive numerical experiments. |
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