scholarly journals Diamond--cell finite volume scheme for the Heston model

2015 ◽  
Vol 8 (5) ◽  
pp. 913-931 ◽  
Author(s):  
Pavol Kútik ◽  
◽  
Karol Mikula ◽  
Author(s):  
Bernd Engelmann ◽  
Frank Koster ◽  
Daniel Oeltz

The two most popular equity and FX derivatives pricing models in banking practice are the local volatility model and the Heston model. While the former has the appealing property that it can be calibrated exactly to any given set of arbitrage free European vanilla option prices, the latter delivers more realistic smile dynamics. In this paper, we combine both modeling approaches to the Heston stochastic local volatility model. We build upon a theoretical framework that has been already developed and focus on the numerical model calibration which requires special care in the treatment of mixed derivatives and in cases where the Feller condition is not met in the Heston model leading to a singular transition density at zero volatility. We propose a finite volume scheme to calibrate the model after a suitable transformation of the model equation and demonstrate its accuracy in numerical test cases using real market data.


Water ◽  
2020 ◽  
Vol 12 (6) ◽  
pp. 1639
Author(s):  
Abdelkrim Aharmouch ◽  
Brahim Amaziane ◽  
Mustapha El Ossmani ◽  
Khadija Talali

We present a numerical framework for efficiently simulating seawater flow in coastal aquifers using a finite volume method. The mathematical model consists of coupled and nonlinear partial differential equations. Difficulties arise from the nonlinear structure of the system and the complexity of natural fields, which results in complex aquifer geometries and heterogeneity in the hydraulic parameters. When numerically solving such a model, due to the mentioned feature, attempts to explicitly perform the time integration result in an excessively restricted stability condition on time step. An implicit method, which calculates the flow dynamics at each time step, is needed to overcome the stability problem of the time integration and mass conservation. A fully implicit finite volume scheme is developed to discretize the coupled system that allows the use of much longer time steps than explicit schemes. We have developed and implemented this scheme in a new module in the context of the open source platform DuMu X . The accuracy and effectiveness of this new module are demonstrated through numerical investigation for simulating the displacement of the sharp interface between saltwater and freshwater in groundwater flow. Lastly, numerical results of a realistic test case are presented to prove the efficiency and the performance of the method.


2013 ◽  
Vol 43 ◽  
pp. 164-179
Author(s):  
M. Bilanceri ◽  
L. Combe ◽  
H. Guillard ◽  
B. Nkonga ◽  
A. Sangam

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