A Comparison of Effective Discretization Schemes for The Double Heston Model in Financial Industry
Authors
Y.F Sun, L.T Ding, C.Y Liu, G.Y Zhang
Corresponding Author
Y.F Sun
Available Online June 2015.
- DOI
- 10.2991/cisia-15.2015.152How to use a DOI?
- Keywords
- heston stochastic volatility model; discretization scheme; option pricing; cos method; feller conditions
- Abstract
This article applies four popular discretization schemes, i.e. Andersen’s quadratic exponential (QE) scheme, Zhu’s scheme, semi-analytical (SA) scheme, and Alfonsi’s second-order scheme, to numerically simulate the double Heston stochastic volatility model. We compare the quality of these schemes in paths simulating by measuring the accuracy in option pricing, with reference values offered by the Fourier COS expansion method (namely the COS method, proposed by F. Fang & C. W. Oosterlee,2008). Numerical results show that not all of these widely used schemes are of acceptable quality in simulating the asset paths when both the Feller conditions in the stochastic volatility model are not satisfied.
- Copyright
- © 2015, the Authors. Published by Atlantis Press.
- Open Access
- This is an open access article distributed under the CC BY-NC license (http://creativecommons.org/licenses/by-nc/4.0/).
Cite this article
TY - CONF AU - Y.F Sun AU - L.T Ding AU - C.Y Liu AU - G.Y Zhang PY - 2015/06 DA - 2015/06 TI - A Comparison of Effective Discretization Schemes for The Double Heston Model in Financial Industry BT - Proceedings of the International Conference on Computer Information Systems and Industrial Applications PB - Atlantis Press SP - 556 EP - 559 SN - 2352-538X UR - https://doi.org/10.2991/cisia-15.2015.152 DO - 10.2991/cisia-15.2015.152 ID - Sun2015/06 ER -