Title
Stability of central finite difference schemes for the Heston PDE
Author
Faculty/Department
Faculty of Sciences. Mathematics and Computer Science
Publication type
article
Publication
Basel ,
Subject
Mathematics
Source (journal)
Numerical algorithms. - Basel
Volume/pages
60(2012) :1 , p. 115-133
ISSN
1017-1398
ISI
000302380100006
Carrier
E
Target language
English (eng)
Full text (Publishers DOI)
Affiliation
University of Antwerp
Abstract
This paper deals with stability in the numerical solution of the prominent Heston partial differential equation from mathematical finance. We study the well-known central second-order finite difference discretization, which leads to large semidiscrete systems with nonnormal matrices A. By employing the logarithmic spectral norm we prove practical, rigorous stability bounds. Our theoretical stability results are illustrated by ample numerical experiments. We also apply the analysis to obtain useful stability bounds for time discretization methods.
Full text (open access)
https://repository.uantwerpen.be/docman/irua/4f5283/4505.pdf
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