HIGH ORDER SPLITTING METHODS FOR FORWARD PDEs AND PIDEs
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Abstract: This paper is dedicated to the construction of high-order (in both space and time) finite-difference schemes for both forward and backward PDEs and PIDEs, such that option prices obtained by solving both the forward and backward equations are consistent. This approach is partly inspired by Andreasen & Huge, 2011 who reported a pair of consistent finite-difference schemes of first-order approximation in time for an uncorrelated local stochastic volatility model. We extend their approach by constructing schemes that are second-order in both space and time and that apply to models with jumps and discrete dividends. Taking correlation into account in our approach is also not an issue.
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Cited in
(10)- High-order time-splitting methods for irreversible equations
- Remarks on High-Resolution Split Schemes Computation
- Modelling stochastic skew of FX options using SLV models with stochastic spot/vol correlation and correlated jumps
- High order splitting schemes with complex timesteps and their application in mathematical finance
- scientific article; zbMATH DE number 5587331 (Why is no real title available?)
- A High Order Operator Splitting Method for the Degasperis–Procesi Equation
- Isogeometric analysis in option pricing
- LSV models with stochastic interest rates and correlated jumps
- Efficient exposure computation by risk factor decomposition
- Diagonal Frog meets ADI: trading matrix exponentials for rational maps in the Fokker--Planck equation
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