BENCHOP–SLV
The BENCHmarking project in Option Pricing–Stochastic and Local Volatility problems
Lina von Sydow (Uppsala University)
Slobodan Milovanović (Uppsala University)
Elisabeth Larsson (Uppsala University)
Karel In 't Hout (Universiteit Antwerpen)
Magnus Wiktorsson (Lund University)
Cornelis W. Oosterlee (Centrum Wiskunde & Informatica (CWI), TU Delft - Electrical Engineering, Mathematics and Computer Science)
Victor Shcherbakov (Uppsala University)
Maarten Wyns (Universiteit Antwerpen)
Alvaro Leitao (Centrum Wiskunde & Informatica (CWI), Barcelona Graduate School of Mathematics)
Shashi Jain (Centrum Wiskunde & Informatica (CWI), Indian Institute of Science)
Tinne Haentjens (Universiteit Antwerpen)
Johan Waldén (University of California)
More Info
expand_more
Other than for strictly personal use, it is not permitted to download, forward or distribute the text or part of it, without the consent of the author(s) and/or copyright holder(s), unless the work is under an open content license such as Creative Commons.
Abstract
In the recent project BENCHOP–the BENCHmarking project in Option Pricing we found that Stochastic and Local Volatility problems were particularly challenging. Here we continue the effort by introducing a set of benchmark problems for this type of problems. Eight different methods targeted for the Stochastic Differential Equation (SDE) formulation and the Partial Differential Equation (PDE) formulation of the problem, as well as Fourier methods making use of the characteristic function, were implemented to solve these problems. Comparisons are made with respect to time to reach a certain error level in the computed solution for the different methods. The implemented Fourier method was superior to all others for the two problems where it was implemented. Generally, methods targeting the PDE formulation of the problem outperformed the methods for the SDE formulation. Among the methods for the PDE formulation the ADI method stood out as the best performing one.
help_outline