Stability of central finite difference schemes for the Heston PDE
Computational Finance
2012-05-08 v1
Abstract
This paper deals with stability in the numerical solution of the prominent Heston partial differential equation from mathematical finance. We study the well-known central second-order finite difference discretization, which leads to large semi-discrete systems with non-normal matrices A. By employing the logarithmic spectral norm we prove practical, rigorous stability bounds. Our theoretical stability results are illustrated by ample numerical experiments.
Keywords
Cite
@article{arxiv.1011.6532,
title = {Stability of central finite difference schemes for the Heston PDE},
author = {K. J. in 't Hout and K. Volders},
journal= {arXiv preprint arXiv:1011.6532},
year = {2012}
}