Finite Difference Based Calibration and Simulation

Jesper Andreasen

Danske Bank - Danske Markets

Brian Norsk Huge

Danske Bank

October 20, 2010

In the context of a stochastic local volatility model, we present a numerical solution scheme that achieves full (discrete) consistency between calibration, finite difference solution and Monte-Carlo simulation. The method is based on an ADI finite difference discretisation of the model.

Number of Pages in PDF File: 14

Keywords: Stochastic local volatility, finite difference solution, calibration, simulation

JEL Classification: G12, G13

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Date posted: October 27, 2010 ; Last revised: October 30, 2010

Suggested Citation

Andreasen, Jesper and Huge, Brian Norsk, Finite Difference Based Calibration and Simulation (October 20, 2010). Available at SSRN: http://ssrn.com/abstract=1697545 or http://dx.doi.org/10.2139/ssrn.1697545

Contact Information

Jesper Andreasen (Contact Author)
Danske Bank - Danske Markets ( email )
Holmens Kanal 2-12
DK-1092 Copenhagen K
Brian Norsk Huge
Danske Bank ( email )
DK-1092 Copenhagen K
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