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Alternating direction implicit finite difference schemes for the Heston-Hull-White partial differential equation
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| Abstract |
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| In this paper we investigate the effectiveness of alternating direction implicit (ADI) time-discretization schemes in the numerical solution of the three-dimensional HestonHullWhite partial differential equation, which is semidiscretized by applying finite difference schemes on nonuniform spatial grids. We consider the HestonHullWhite model with arbitrary correlation factors, with timedependent mean-reversion levels, with short and long maturities, for cases where the Feller condition is satisfied and for cases where it is not. In addition, both European-style call options and up-and-out call options are considered. It is shown through extensive tests that ADI schemes with a proper choice of parameters perform very well in all situations, in terms of stability, accuracy and efficiency. | | |
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English
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The journal of computational finance. - London | |
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London : 2012
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1460-1559
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16:1(2012), p. 83-110
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000317664500004
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