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1. ADI schemes with Ikonen-Toivanen splitting for pricing American put options in the Heston model

Author

Tinne Haentjens, Karel in’t Hout, Kim Volders, Theodore E. Simos, George Psihoyios, and Ch. Tsitouras

Subjects
Stochastic partial differential equation, Computer. Automation, Alternating direction implicit method, Partial differential equation, Stochastic volatility, Stochastic process, Numerical analysis, Mathematical economics, Mathematics, Valuation (finance), Heston model
Abstract

The numerical valuation of American put options under the Heston stochastic volatility model is considered. We investigate in this paper the potential of combining the recent splitting approach of Ikonen & Toivanen (2004, 2009) with Alternating Direction Implicit schemes to obtain more efficient numerical methods

Published
2010