ADI schemes for valuing European options under the Bates model
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Publication:1748427
alternating direction implicit schemesBates modeloperator splitting methodspartial integro-differential equationsstability
Finite difference methods for initial value and initial-boundary value problems involving PDEs (65M06) Stability and convergence of numerical methods for initial value and initial-boundary value problems involving PDEs (65M12) Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60)
Abstract: This paper is concerned with the adaptation of alternating direction implicit (ADI) time discretization schemes for the numerical solution of partial integro-differential equations (PIDEs) with application to the Bates model in finance. Three different adaptations are formulated and their (von Neumann) stability is analyzed. Ample numerical experiments are provided for the Bates PIDE, illustrating the actual stability and convergence behaviour of the three adaptations.
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Cited in
(22)- Numerical simulation of fractional-order dynamical systems in noisy environments
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