Journal of Computational Finance

Risk.net

A hybrid tree/finite-difference approach for Heston–Hull–White-type models

Maya Briani, Lucia Caramellino and Antonino Zanette

  • A hybrid tree/finite-difference method for the approximation of the Heston Hull-White models.
  • A new simulation scheme for Monte Carlo evaluations of option prices.
  • Numerical results show the accuracy of the proposed methods.
     

In this paper, we study a hybrid tree/finite-difference method, which allows us to obtain efficient and accurate European and American option prices in the Heston–Hull–White and Heston–Hull–White2d models. Moreover, as a by-product, we provide a new simulation scheme that can be used for Monte Carlo evaluations. Numerical results show the reliability and efficiency of the proposed methods.

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