Approximating explicitly the mean-reverting CEV process
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Abstract: In this paper we want to exploit further the semi-discrete method appeared in Halidias and Stamatiou (2015). We are interested in the numerical solution of mean reverting CEV processes that appear in financial mathematics models and are described as non negative solutions of certain stochastic differential equations with sub-linear diffusion coefficients of the form where Our goal is to construct explicit numerical schemes that preserve positivity. We prove convergence of the proposed SD scheme with rate depending on the parameter Furthermore, we verify our findings through numerical experiments and compare with other positivity preserving schemes. Finally, we show how to treat the whole two-dimensional stochastic volatility model, with instantaneous variance process given by the above mean reverting CEV process.
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Cited in
(16)- Mean-reverting \(\theta\) process with time delay and the convergence of its numerical solution
- The semi-discrete method for the approximation of the solution of stochastic differential equations
- A comparison of biased simulation schemes for stochastic volatility models
- Fast strong approximation Monte Carlo schemes for stochastic volatility models
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- Finite difference scheme versus piecewise binomial lattice for interest rates under the skew CEV model
- Positivity and convergence of the balanced implicit method for the nonlinear jump-extended CIR model
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