A Finite Volume–Alternating Direction Implicit Method for the Valuation of American Options under the Heston Model

Document Type

Article

Publication Date

3-18-2020

Publication Title

International Journal of Computer Mathematics

Volume

97

Issue

3

First page number:

700

Last page number:

724

Abstract

A finite volume–alternating direction implicit method is proposed for numerical valuation of the American options under the Heston model. It is based on decoupling correlated stock price process and volatility process so that corresponding partial differential operator does not contain the mixed partial derivative term. Hence, the proposed method is numerically simple and fast. Numerical results are presented to examine the accuracy of the proposed method and to compare it with the others.

Keywords

Options Valuation; Finite Volume Method; Alternating Direction Implicit Method; Heston Model

Disciplines

Mathematics | Physical Sciences and Mathematics

Language

English

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