Splitting and matrix exponential approach for jump-diffusion models with Inverse Normal Gaussian, Hyperbolic and Meixner jumps

DOI10.3233/AF-140041zbMATH Open1396.91800arXiv1405.6111MaRDI QIDQ4586441FDOQ4586441

Authors: Andrey Itkin 

Publication date: 13 September 2018

Published in: Algorithmic Finance (Search for Journal in Brave)

Abstract: This paper is a further extension of the method proposed in Itkin, 2014 as applied to another set of jump-diffusion models: Inverse Normal Gaussian, Hyperbolic and Meixner. To solve the corresponding PIDEs we accomplish few steps. First, a second-order operator splitting on financial processes (diffusion and jumps) is applied to these PIDEs. To solve the diffusion equation, we use standard finite-difference methods. For the jump part, we transform the jump integral into a pseudo-differential operator and construct its second order approximation on a grid which supersets the grid that we used for the diffusion part. The proposed schemes are unconditionally stable in time and preserve positivity of the solution which is computed either via a matrix exponential, or via P'ade approximation of the matrix exponent. Various numerical experiments are provided to justify these results.

Full work available at URL: https://arxiv.org/abs/1405.6111

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zbMATH Keywords

jump-diffusionmatrix exponentialsplittingunconditionally stable schemesPIDE

Mathematics Subject Classification ID

Numerical methods (including Monte Carlo methods) (91G60) Diffusion processes (60J60) Finite difference methods for initial value and initial-boundary value problems involving PDEs (65M06)

Cited In (2)

• Splitting methods for Fokker-Planck equations related to jump-diffusion processes
• A time multidomain spectral method for valuing affine stochastic volatility and jump diffusion models

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