Home

Simulation schemes for the Heston model with Poisson conditioning

Author
Jaehyuk Choi, Yue Kuen Kwok
Date Updated
2023/01/09
Category
q-fin.MF
Date Published
2023/01/07
Date Retrieved
2023/01/10
Description
Exact simulation schemes under the Heston stochastic volatility model (e.g., Broadie-Kaya and Glasserman-Kim) suffer from computationally expensive Bessel function evaluations. We propose a new exact simulation scheme without the Bessel function, based on the observation that the conditional integrated variance can be simplified when conditioned by the Poisson variate used for simulating the terminal variance. Our approach also enhances low-bias and time discretization schemes, which are suitable for derivatives with frequent monitoring. Extensive numerical tests reveal the good performance of the new simulation schemes in terms of accuracy, efficiency, and reliability when compared with existing methods.
Image
Posts
1
Readers
0
Score
0.25
Tweeters
1
Property
TOP