Discretizing the Heston Model: An Analysis of the Weak Convergence Rate
Numerical Analysis
2016-04-20 v1 Probability
Abstract
In this manuscript we analyze the weak convergence rate of a discretization scheme for the Heston model. Under mild assumptions on the smoothness of the payoff and on the Feller index of the volatility process, respectively, we establish a weak convergence rate of order one. Moreover, under almost minimal assumptions we obtain weak convergence without a rate. These results are accompanied by several numerical examples. Our error analysis relies on a classical technique from Talay & Tubaro, a recent regularity estimate for the Heston PDE by Feehan & Pop and Malliavin calculus.
Keywords
Cite
@article{arxiv.1604.05540,
title = {Discretizing the Heston Model: An Analysis of the Weak Convergence Rate},
author = {Martin Altmayer and Andreas Neuenkirch},
journal= {arXiv preprint arXiv:1604.05540},
year = {2016}
}