Strong approximation of a two-factor stochastic volatility model under local Lipschitz condition

Coffie Emmanuel ()
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Coffie Emmanuel: Institute for Financial and Actuarial Mathematics, University of Liverpool, Liverpool L69 7ZL, United Kingdom

Monte Carlo Methods and Applications, 2024, vol. 30, issue 1, 55-72

Abstract: We establish theoretical properties of the solution to a two-variance-driven interest rate model with super-linear coefficient terms. Since this model is not tractable analytically, we construct an implementable numerical method to approximate it and prove the finite-time strong convergence theory under the local Lipschitz condition. Finally, we provide simulation examples to demonstrate the theoretical results.

Keywords: Two-factor stochastic volatility model; truncated EM method; strong convergence; Monte Carlo method (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1515/mcma-2023-2021

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