Nonlinear PDE model for European options with transaction costs under Heston stochastic volatility

被引：8
|
作者：
Lu, Xiaoping [1 ]
Zhu, Song-Ping [1 ]
Yan, Dong [1 ]
机构：
[1] Univ Wollongong, Sch Math & Appl Stat, Wollongong, NSW, Australia
来源：
COMMUNICATIONS IN NONLINEAR SCIENCE AND NUMERICAL SIMULATION | 2021年 / 103卷
关键词：
Nonlinear partial differential equations; Option pricing; Stochastic volatility; Transaction costs; PRICING-MODELS;
D O I：
10.1016/j.cnsns.2021.105986
中图分类号：
O29 [应用数学];
学科分类号：
070104 ;
摘要：
In this work, we formulate a pricing model for European options with transaction costs under Heston-type stochastic volatility. The resulting pricing partial differential equations (PDEs) are a pair of nonlinear convection-diffusion-reaction equations with mixed deriva-tive terms, for the writing and holding prices, respectively. The equations are solved nu-merically by the explicit Euler method. Numerical experiments are presented to illustrate the order of convergence and the effect of the transaction costs on option prices. (c) 2021 Elsevier B.V. All rights reserved.
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页数：9
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