High-order compact finite difference schemes for option pricing in stochastic volatility models on non-uniform grids
arXiv:1404.5138 · doi:10.1016/j.cam.2014.04.016
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.
21 pages, to appear in J. Comput. Appl. Math
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Cited by in corpus (5)
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