An accurate and stable numerical method for option hedge parameters
作者：
Highlights：
• The Feynman-Kac formula reduces truncation error in time direction.
• Piecewise quadratic approximation gives the third-order convergence in asset direction.
• Unconditional stability is achieved by analytic integration over the lognormal distribution.
• Local volatility surface and interest rate term structure can be used as input data.
• We use vectorized code to reduce time complexity compared to the Crank-Nicolson.
摘要
•The Feynman-Kac formula reduces truncation error in time direction.•Piecewise quadratic approximation gives the third-order convergence in asset direction.•Unconditional stability is achieved by analytic integration over the lognormal distribution.•Local volatility surface and interest rate term structure can be used as input data.•We use vectorized code to reduce time complexity compared to the Crank-Nicolson.
论文关键词：Option pricing,Black-Scholes partial differential equation,Feynman-Kac formula,Finite difference method,Unconditionally stable methods,Numerical techniques
论文评审过程：Received 13 December 2021, Revised 26 March 2022, Accepted 21 May 2022, Available online 26 May 2022, Version of Record 26 May 2022.
论文官网地址：https://doi.org/10.1016/j.amc.2022.127276
