Implicit-explicit numerical schemes for jump-diffusion processes
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The authors consider the numerical solution of the Cauchy problem for a parabolic integro-differential equation (PIDE) in one spatial dimension. Such equations arise in applications in financial mathematics with Lévy processes. The focus here is on the time discretization of the stiff system of ordinary differential equations resulting from a spatial approximation of the PIDE describing the jump-diffusion model with constant coefficients. Implicit-explicit Runge-Kutta methods are suggested with which the diffusion and reaction term is dealt with implicitly, whereas the convective and nonlocal integral term is resolved explicitly. Stability properties are analyzed and the implementation of the numerical scheme, also in combination with artificial boundary conditions, is studied. Finally, numerical experiments are carried out.
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