Efficient, almost exact simulation of the Heston stochastic volatility model

We deal with several ecient discretization methods for the simulation of the Heston stochastic volatility model. The resulting schemes can be used to calculate all kind of options and correspondingsensitivities, in particular the exotic options that cannot be valued with closed-form solutions. We focus on to the (computational) efficiency of the simulation schemes: though theBroadie and Kaya (2006) paper provided an exact simulation method for the Heston dynamics, we argue why its practical use might be limited. Instead we consider efficient approximations ofthe exact scheme, which try to exploit certain distributional features of the underlying variance process. The resulting methods are fast, highly accurate and easy to implement. We conclude bynumerically comparing our new schemes to the exact scheme of Broadie and Kaya, the almost exact scheme of Smith, the Kahl-Jäckel scheme, the Full Truncation scheme of Lord et al. and the Quadratic Exponential scheme of Andersen.

Netspar, Network for Studies on Pensions, Aging and Retirement, is een denktank en kennisnetwerk. Netspar is gericht op een goed geïnformeerd pensioendebat.

MEER OVER NETSPAR


Missie en strategie           •           Netwerk           •           Organisatie           •          Podcasts
Board Brief            •            Werkprogramma 2023-2027           •           Onderzoeksagenda

OVER NETSPAR

Onze partners

B20231704_DNB_Blacklogo
svb
B20211216_shell download
B20160708_uva
B20200924_Ortec Finance logo 250px_banner_small
Bekijk al onze partners