LSV models with stochastic interest rates and correlated jumps

ABSTRACT Pricing and hedging exotic options using local stochastic volatility models drew a serious attention within the last decade, and nowadays became almost a standard approach to this problem. In this paper we show how this framework could be extended by adding to the model stochastic interest rates and correlated jumps in all three components. We also propose a new fully implicit modification of the popular Hundsdorfer and Verwer and Modified Craig–Sneyd finite-difference schemes which provides second-order approximation in space and time, is unconditionally stable and preserves positivity of the solution, while still has a linear complexity in the number of grid nodes.

• Publication year

  2015

• Venue

  International Journal of Computational Mathematics

• Publication date

  2015-11-04

• Fields of study

  Mathematics, Business, Economics, Computer Science

• Identifiers
  DOI 10.1080/00207160.2016.1188923arXiv 1511.01460
• External record

  Open on Semantic Scholar

• Source metadata

  Semantic Scholar

• No claims are published for this paper.

• No concepts are published for this paper.

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