High-Order Splitting Methods for Forward PDEs and PIDEs

Andrey Itkin ()

Papers from arXiv.org

Abstract: This paper is dedicated to the construction of high-order (in both space and time) finite-difference schemes for both forward and backward PDEs and PIDEs, such that option prices obtained by solving both the forward and backward equations are consistent. This approach is partly inspired by Andreasen & Huge, 2011 who reported a pair of consistent finite-difference schemes of first-order approximation in time for an uncorrelated local stochastic volatility model. We extend their approach by constructing schemes that are second-order in both space and time and that apply to models with jumps and discrete dividends. Taking correlation into account in our approach is also not an issue.

Date: 2014-03
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1403.1804

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