Finite Difference Based Calibration and Simulation
Danske Bank - Danske Markets
Brian Norsk Huge
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
Date posted: October 27, 2010 ; Last revised: October 30, 2010
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