Adaptive Simulation of the Heston Model

Details Adaptive Simulation of the Heston Model Adaptive Simulation of the Heston Model

2011-11-25

arxiv.org/abs/1111.6067v1

Economy

Quantitative Finance

Computational Finance

23 pages, 4 Postscript figures

Scientific paper

Recent years have seen an increased level of interest in pricing equity options under a stochastic volatility model such as the Heston model. Often, simulating a Heston model is difficult, as a standard finite difference scheme may lead to significant bias in the simulation result. Reducing the bias to an acceptable level is not only challenging but computationally demanding. In this paper we address this issue by providing an alternative simulation strategy -- one that systematically decreases the bias in the simulation. Additionally, our methodology is adaptive and achieves the reduction in bias with "near" minimum computational effort. We illustrate this feature with a numerical example.

Affiliated with

Also associated with

No associations

Rating

Adaptive Simulation of the Heston Model does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.

If you have personal experience with Adaptive Simulation of the Heston Model, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and Adaptive Simulation of the Heston Model will most certainly appreciate the feedback.

Rate now

Comments { 0 }

Profile ID: LFWR-SCP-O-174907