Proceedings of the International Conference on Computer Information Systems and Industrial Applications

A Comparison of Effective Discretization Schemes for The Double Heston Model in Financial Industry

Authors
Y.F Sun, L.T Ding, C.Y Liu, G.Y Zhang
Corresponding Author
Y.F Sun
Available Online June 2015.
DOI
10.2991/cisia-15.2015.152How to use a DOI?
Keywords
heston stochastic volatility model; discretization scheme; option pricing; cos method; feller conditions
Abstract

This article applies four popular discretization schemes, i.e. Andersen’s quadratic exponential (QE) scheme, Zhu’s scheme, semi-analytical (SA) scheme, and Alfonsi’s second-order scheme, to numerically simulate the double Heston stochastic volatility model. We compare the quality of these schemes in paths simulating by measuring the accuracy in option pricing, with reference values offered by the Fourier COS expansion method (namely the COS method, proposed by F. Fang & C. W. Oosterlee,2008). Numerical results show that not all of these widely used schemes are of acceptable quality in simulating the asset paths when both the Feller conditions in the stochastic volatility model are not satisfied.

Copyright
© 2015, the Authors. Published by Atlantis Press.
Open Access
This is an open access article distributed under the CC BY-NC license (http://creativecommons.org/licenses/by-nc/4.0/).

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Volume Title
Proceedings of the International Conference on Computer Information Systems and Industrial Applications
Series
Advances in Computer Science Research
Publication Date
June 2015
ISBN
10.2991/cisia-15.2015.152
ISSN
2352-538X
DOI
10.2991/cisia-15.2015.152How to use a DOI?
Copyright
© 2015, the Authors. Published by Atlantis Press.
Open Access
This is an open access article distributed under the CC BY-NC license (http://creativecommons.org/licenses/by-nc/4.0/).

Cite this article

TY  - CONF
AU  - Y.F Sun
AU  - L.T Ding
AU  - C.Y Liu
AU  - G.Y Zhang
PY  - 2015/06
DA  - 2015/06
TI  - A Comparison of Effective Discretization Schemes for The Double Heston Model in Financial Industry
BT  - Proceedings of the International Conference on Computer Information Systems and Industrial Applications
PB  - Atlantis Press
SP  - 556
EP  - 559
SN  - 2352-538X
UR  - https://doi.org/10.2991/cisia-15.2015.152
DO  - 10.2991/cisia-15.2015.152
ID  - Sun2015/06
ER  -