Numerical Solutions for the Stochastic Local Volatility Model

Numerical Solutions for the Stochastic Local Volatility Model

van der Weijst, Roel (TU Delft Electrical Engineering, Mathematics and Computer Science; TU Delft Delft Institute of Applied Mathematics)

Oosterlee, Kees (mentor)
Cirillo, Pasquale (graduation committee)
Fokkink, Robbert (graduation committee)

Delft University of Technology

Applied Mathematics

2017-08-31

This thesis is about pricing European options and forward start options under the Heston LSV model. The impact of conditionally calibrating the Heston parameters on the satisfaction of the Feller condition and thereafter correcting with a local volatility surface is investigated here. The results show that this approach is computationally time efficient and accurate. Efficient numerical approaches for this LSV model, such as the multilevel Monte Carlo method, are also investigated. Furthermore, a comparison of several discretizations schemes for the SV part have been conducted. For the calibration of the local volatility surface, the efficiency of the Particle method and the Bin method are compared. An alternative numerical approach to this problem which builds on these two methods is developed and tested.

multilevel Monte Carlo
Local Stochastic Volatility
Forward Start Option
Option Pricing
Heston
Calibration

http://resolver.tudelft.nl/uuid:029cbbc3-d4d4-4582-8be2-e0979e9f6bc3

Student theses

master thesis

© 2017 Roel van der Weijst