ADI Schemes for Pricing American Options under the Heston Model

By Tinne Haentjens, K. J. in ’t Hout. 2013

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Abstract In this article, a simple, effective adaptation of Alternating Direction Implicit time discretization schemes is proposed for the numerical pricing of American-style options under the Heston model via a partial differential complementarity problem. The stability and convergence of the new methods are extensively investigated in actual, challenging applications. In addition, a relevant theoretical result is proved.

Subfields: Control and Systems Engineering, Finance, Statistical and Nonlinear Physics

View Paper: https://www.semanticscholar.org/paper/7cc0de4e7a9fa5badc39de29380685811155511e