High-Order Compact Finite Difference Scheme for Option Pricing in Stochastic Volatility with Contemporaneous Jump Models
We extend the scheme developed in B. Düring, A. Pitkin, “High-order compact finite difference scheme for option pricing in stochastic volatility jump models”, 2019, to the so-called stochastic volatility with contemporaneous jumps (SVCJ) model, derived by Duffie, Pan and Singleton. The performance of the scheme is assessed through a number of numerical experiments, using comparisons against a standard second-order central difference scheme. We observe that the new high-order compact scheme achieves fourth order convergence and discuss the effects on efficiency and computation time.
BD acknowledges partial support by the Leverhulme Trust research project grant ‘Novel discretisations for higher-order nonlinear PDE’ (RPG-2015-69). AP has been supported by a studentship under the EPSRC Doctoral Training Partnership (DTP) scheme (grant number EP/M506667/1).
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