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Title
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Alternating direction implicit finite difference schemes for the Heston-Hull-White partial differential equation
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Author
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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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Language
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English
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Source (journal)
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The journal of computational finance. - London, 1997, currens
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Publication
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London
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2012
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ISSN
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1460-1559
[print]
1755-2850
[online]
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Volume/pages
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16
:1
(2012)
, p. 83-110
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ISI
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000317664500004
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Full text (publisher's version - intranet only)
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