Volume 10, Issue 4
Artificial Boundary Method for European Pricing Option Problem

Hongshan Li & Zhongyi Huang

East Asian J. Appl. Math., 10 (2020), pp. 746-773.

Published online: 2020-08

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  • Abstract

This paper deals with the valuation of European call options under the Heston stochastic volatility model. An asymptotic solution of the European pricing option problem in powers of the volatility of variance is derived. An artificial boundary method for solving the problem on a truncated domain is considered and artificial boundary conditions are constructed. Numerical simulations show that these conditions allow to find more accurate numerical solutions than for the widely-used Heston boundary condition.

  • Keywords

Option pricing, Heston model, asymptotic analysis, artificial boundary condition.

  • AMS Subject Headings

65M06, 35C20, 35K20

  • Copyright

COPYRIGHT: © Global Science Press

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@Article{EAJAM-10-746, author = {Hongshan Li , and Zhongyi Huang , }, title = {Artificial Boundary Method for European Pricing Option Problem}, journal = {East Asian Journal on Applied Mathematics}, year = {2020}, volume = {10}, number = {4}, pages = {746--773}, abstract = {

This paper deals with the valuation of European call options under the Heston stochastic volatility model. An asymptotic solution of the European pricing option problem in powers of the volatility of variance is derived. An artificial boundary method for solving the problem on a truncated domain is considered and artificial boundary conditions are constructed. Numerical simulations show that these conditions allow to find more accurate numerical solutions than for the widely-used Heston boundary condition.

}, issn = {2079-7370}, doi = {https://doi.org/10.4208/eajam.080320.270420}, url = {http://global-sci.org/intro/article_detail/eajam/17956.html} }
TY - JOUR T1 - Artificial Boundary Method for European Pricing Option Problem AU - Hongshan Li , AU - Zhongyi Huang , JO - East Asian Journal on Applied Mathematics VL - 4 SP - 746 EP - 773 PY - 2020 DA - 2020/08 SN - 10 DO - http://doi.org/10.4208/eajam.080320.270420 UR - https://global-sci.org/intro/article_detail/eajam/17956.html KW - Option pricing, Heston model, asymptotic analysis, artificial boundary condition. AB -

This paper deals with the valuation of European call options under the Heston stochastic volatility model. An asymptotic solution of the European pricing option problem in powers of the volatility of variance is derived. An artificial boundary method for solving the problem on a truncated domain is considered and artificial boundary conditions are constructed. Numerical simulations show that these conditions allow to find more accurate numerical solutions than for the widely-used Heston boundary condition.

Hongshan Li & Zhongyi Huang. (2020). Artificial Boundary Method for European Pricing Option Problem. East Asian Journal on Applied Mathematics. 10 (4). 746-773. doi:10.4208/eajam.080320.270420
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