Numerical methods for solving PIDEs arising in swing option pricing under a two-factor mean-reverting model with jumps
Numerical Analysis
2026-02-05 v2 Numerical Analysis
Computational Finance
Abstract
This paper concerns the numerical valuation of swing options with discrete action times under a linear two-factor mean-reverting model with jumps. The resulting sequence of two-dimensional partial integro-differential equations (PIDEs) are convection-dominated and possess a nonlocal integral term due to the presence of jumps. Further, the initial function is nonsmooth. We propose various second-order numerical methods that can adequately handle these challenging features. The stability and convergence of these numerical methods are analysed theoretically. By ample numerical experiments, we confirm their second-order convergence behaviour.
Cite
@article{arxiv.2511.01587,
title = {Numerical methods for solving PIDEs arising in swing option pricing under a two-factor mean-reverting model with jumps},
author = {Mustapha Regragui and Karel J. in 't Hout and Michèle Vanmaele and Fred Espen Benth},
journal= {arXiv preprint arXiv:2511.01587},
year = {2026}
}