Positive Splitting Method for the Hull & White 2D Black-Scholes Equation
Numerical Analysis
2015-07-20 v4
Abstract
In this paper we present a locally one-dimensional (LOD) splitting method to solve numerically the two-dimensional Black-Scholes equation, arising in the Hull & White model for pricing European options with stochastic volatility, characterized by the presence of a mixed derivative term. The parabolic equation degenerates on the boundary x = 0 and we apply a fitted finite-volume difference scheme, proposed in [23], in order to resolve the degeneration. Discrete maximum principle is proved and therefore our method preserves the non-negativity. Numerical experiments illustrate the efficiency of our difference scheme.
Cite
@article{arxiv.1307.0232,
title = {Positive Splitting Method for the Hull & White 2D Black-Scholes Equation},
author = {T. Chernogorova and R. Valkov},
journal= {arXiv preprint arXiv:1307.0232},
year = {2015}
}
Comments
the final version is at NMPDE