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arXiv · 1011.6532

Stability of central finite difference schemes for the Heston PDE

K. J. in 't Hout·K. Volders
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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 semi-discrete systems with non-normal matrices A. By employing the logarithmic spectral norm we prove practical, rigorous stability bounds. Our theoretical stability results are illustrated by ample numerical experiments.

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K. J. in 't Hout, K. Volders. 2010-11-30. Stability of central finite difference schemes for the Heston PDE. https://doi.org/10.1007/s11075-011-9514-1

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