Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
6422525 | Journal of Computational and Applied Mathematics | 2014 | 20 Pages |
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.
Related Topics
Physical Sciences and Engineering
Mathematics
Applied Mathematics
Authors
Bertram Düring, Michel Fournié, Christof Heuer,