High-order compact finite difference scheme for option pricing in stochastic volatility with contemporaneous jump models

Abstract

We extend the scheme developed in B. Düring, A. Pitkin, "High-order compact finite difference scheme for option pricing in stochastic volatility jump models", 2019, to the so-called stochastic volatility with contemporaneous jumps (SVCJ) model, derived by Duffie, Pan and Singleton. The performance of the scheme is assessed through a number of numerical experiments, using comparisons against a standard second-order central difference scheme. We observe that the new high-order compact scheme achieves fourth order convergence and discuss the effects on efficiency and computation time.

6 pages, 2 figures. arXiv admin note: text overlap with arXiv:1704.05308, arXiv:1710.05542