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arXiv · 1810.13248

High-order compact finite difference scheme for option pricing in stochastic volatility with contemporaneous jump models

Bertram Düring·Alexander Pitkin
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Abstract

We extend the scheme developed in B. D\"uring, A. Pitkin, "High-order compact finite difference scheme for option pricing in stochastic volatility jump models", 2019, to the so-called stochastic volatility with contemporaneous jumps (SVCJ) model, derived by Duffie, Pan and Singleton. The performance of the scheme is assessed through a number of numerical experiments, using comparisons against a standard second-order central difference scheme. We observe that the new high-order compact scheme achieves fourth order convergence and discuss the effects on efficiency and computation time.

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Bertram Düring, Alexander Pitkin. 2018-10-30. High-order compact finite difference scheme for option pricing in stochastic volatility with contemporaneous jump models. https://arxiv.org/abs/1810.13248

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