Journal of Computational Finance
ISSN:
1460-1559 (print)
1755-2850 (online)
Editor-in-chief: Christoph Reisinger
Fast and accurate long-stepping simulation of the Heston stochastic volatility model
Jiun Hong Chan and Mark Joshi
Abstract
ABSTRACT
In this paper, we present three new discretization schemes for the Heston stochastic volatility model: two schemes for simulating the variance process and one for simulating the integrated variance process conditional on the initial point and the end point of the variance process. Instead of using a short time-stepping approach to simulate the variance process and its integral, these new schemes evolve the Heston process accurately over long steps without the need to sample the intervening values. Hence, prices of financial derivatives can be evaluated rapidly using our new approaches.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net