Title
Alternating direction implicit finite difference schemes for the Heston-Hull-White partial differential equation Alternating direction implicit finite difference schemes for the Heston-Hull-White partial differential equation
Author
Faculty/Department
Faculty of Sciences. Mathematics and Computer Science
Publication type
article
Publication
London ,
Subject
Economics
Mathematics
Source (journal)
The journal of computational finance. - London
Volume/pages
16(2012) :1 , p. 83-110
ISSN
1460-1559
ISI
000317664500004
Carrier
E
Target language
English (eng)
Affiliation
University of Antwerp
Abstract
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.
E-info
https://repository.uantwerpen.be/docman/iruaauth/25ec31/024d1d57017.pdf
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