Random grids - Risk.net

Jesper Andreasen and Brian Huge
23 Jun 2011

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Derivatives models are generally specified in continuous form as a stochastic differential equation (SDE), and implementation of a model will typically involve a number of different discrete approximations of the SDE. For example, an implementation of the Heston (1993) model might have calibration to European-style option prices via numerical inversion of discrete Fourier transforms, backward pricing of exotics handled in a Craig-Sneyd (1988) finite difference scheme, and Monte Carlo pricing

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