A comparison of biased simulation schemes for stochastic volatility models
Abstract: Using an Euler discretisation to simulate a mean-reverting CEV process gives rise to the problem that while the process itself is guaranteed to be nonnegative, the discretisation is not. Although an exact and efficient simulation algorithm exists for this process, at present this is not the case for the CEV-SV stochastic volatility model, with the Heston model as a special case, where the variance is modelled as a mean-reverting CEV process. Consequently, when using an Euler discretisation, one must carefully think about how to fix negative variances. Our contribution is threefold. Firstly, we unify all Euler fixes into a single general framework. Secondly, we introduce the new full truncation scheme, tailored to minimise the positive bias found when pricing European options. Thirdly and finally, we numerically compare all Euler fixes to recent quasi-second order schemes of Kahl and Jäckel and Ninomiya and Victoir, as well as to the exact scheme of Broadie and Kaya. The choice of f
- Standort
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Deutsche Nationalbibliothek Frankfurt am Main
- Umfang
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Online-Ressource
- Sprache
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Englisch
- Anmerkungen
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Postprint
begutachtet (peer reviewed)
In: Quantitative Finance ; 10 (2010) 2 ; 177-194
- Klassifikation
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Wirtschaft
- Ereignis
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Veröffentlichung
- (wo)
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Mannheim
- (wann)
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2010
- Urheber
- DOI
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10.1080/14697680802392496
- URN
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urn:nbn:de:0168-ssoar-221279
- Rechteinformation
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Open Access unbekannt; Open Access; Der Zugriff auf das Objekt ist unbeschränkt möglich.
- Letzte Aktualisierung
-
15.08.2025, 07:28 MESZ
Datenpartner
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Beteiligte
- Lord, Roger
- Koekkoek, Remmert
- Dijk, Dick van
Entstanden
- 2010
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