Efficient hedging in Bates model using high-order compact finite differences

DOI10.1007/978-3-319-99719-3_44MaRDI QIDQ2417141zbMATH OpenOpenAlexFDO

Authors Bertram Düring, Alexander Pitkin

Publication date 11 June 2019

Full work available at URL https://arxiv.org/abs/1710.05542, http://sro.sussex.ac.uk/id/eprint/75216/1/__smbhome.uscs.susx.ac.uk_bw233_Desktop_SRO_SRO%20-%20Bertram%20Duering_AMMCS-CAIMS2015-DuringPitkin_merged.pdf

zbMATH Keywords

Bates modelhedginghigh-order compact finite differencesoption pricingstochastic volatility jump model

Mathematics Subject Classification ID

Finite difference methods for initial value and initial-boundary value problems involving PDEs (65M06) Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60)

Abstract: We evaluate the hedging performance of a high-order compact finite difference scheme from [4] for option pricing in Bates model. We compare the scheme's hedging performance to standard finite difference methods in different examples. We observe that the new scheme outperforms a standard, second-order central finite difference approximation in all our experiments.

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