Positive numerical splitting method for the hull and white 2D black-scholes equationPositive numerical splitting method for the hull and white 2D black-scholes equation
Faculty of Sciences. Mathematics and Computer Science
Applied mathematics and numerical analysis
2015New York, N.Y., 2015
Numerical methods for partial differential equations. - New York, N.Y.
31(2015):3, p. 822-846
University of Antwerp
We consider the locally one-dimensional backward Euler splitting method to solve numerically the Hull and White problem for pricing European options with stochastic volatility in the presence of a mixed derivative term. We prove the first-order convergence of the time-splitting. The parabolic equation degenerates on the boundary x=0 and we apply a fitted finite volume scheme to the equation to resolve the degeneracy and derive the fully discrete problem as we also investigate the discrete maximum principle. Numerical experiments illustrate the efficiency of our difference scheme. (c) 2014 Wiley Periodicals, Inc. Numer Methods Partial Differential Eq 31: 822-846, 2015