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- Title
The Weak Convergence Rate of Two Semi-Exact Discretization Schemes for the Heston Model.
- Authors
Mickel, Annalena; Neuenkirch, Andreas
- Abstract
Inspired by the article Weak Convergence Rate of a Time-Discrete Scheme for the Heston Stochastic Volatility Model, Chao Zheng, SIAM Journal on Numerical Analysis 2017, 55:3, 1243–1263, we studied the weak error of discretization schemes for the Heston model, which are based on exact simulation of the underlying volatility process. Both for an Euler- and a trapezoidal-type scheme for the log-asset price, we established weak order one for smooth payoffs without any assumptions on the Feller index of the volatility process. In our analysis, we also observed the usual trade off between the smoothness assumption on the payoff and the restriction on the Feller index. Moreover, we provided error expansions, which could be used to construct second order schemes via extrapolation. In this paper, we illustrate our theoretical findings by several numerical examples.
- Subjects
NUMERICAL analysis; MARKET volatility; MALLIAVIN calculus; STOCHASTIC models; EXTRAPOLATION
- Publication
Risks, 2021, Vol 9, Issue 1, p23
- ISSN
2227-9091
- Publication type
Article
- DOI
10.3390/risks9010023