An Efficient ETD Method for Pricing American Options Under Stochastic Volatility with Nonsmooth Payoffs

作者：Yousuf M^*; Khaliq A Q M

来源：Numerical Methods for Partial Differential Equations, 2013, 29(6): 1864-1880.

DOI：10.1002/num.21780

• American options
• stochastic volatility
• butterfly spread
• rational approximations
• nonsmooth data

Based on Cox and Matthews Exponential Time Differencing (ETD) approach, a fourth-order strongly-stable method having real distinct poles is developed and applied to solve American options under stochastic volatility with nonsmooth payoffs. A computationally efficient version of the method is constructed using partial fraction splitting technique. This approach requires to solve several backward Euler-type linear systems at each time step. Numerical experiments are presented to demonstrate the computational efficiency, accuracy, and reliability of the method.

• 出版日期2013-11
• 单位中国石油大学（北京）