A robust spectral method for solving Heston’s model
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Date
2014
Authors
Journal Title
Journal ISSN
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Publisher
Springer Verlag
Abstract
In this paper, we consider the Heston’s volatility model (Heston in Rev.
Financ. Stud. 6: 327–343, 1993]. We simulate this model using a combination of the
spectral collocation method and the Laplace transforms method. To approximate the
two dimensional PDE, we construct a grid which is the tensor product of the two
grids, each of which is based on the Chebyshev points in the two spacial directions.
The resulting semi-discrete problem is then solved by applying the Laplace transform
method based on Talbot’s idea of deformation of the contour integral (Talbot in IMA
J. Appl. Math. 23(1): 97–120, 1979).
Description
Keywords
Heston’s volatility model, Spectral methods, Laplace transform, Stochastic volatility
Citation
Egounda, E. et al. (2014). A robust spectral method for solving Heston’s model. Journal of Optimization Theory and Application, 161: 164 – 178