Fast Ninomiya-Victoir calibration of the double-mean-reverting model. (English) Zbl 1290.91155
The paper proposes two fast Monte Carlo schemes suitable for multi-factor diffusion models. The two schemes are a) the modified Ninomiya-Victoir scheme, and b) the Ninomiya-Victoir scheme and drift trick. Both schemes achieve a weak convergence of order two allowing for fast calibration. The applicability of the proposed schemes is illustrated for a three-factor double mean-reverting diffusion model that is applied simultanously to the pricing of plain vanillas on the SPX and the pricing of VIX derivatives, such as variance swaps. The presented results are highly valuable for financial engineering in practice.
Reviewer: Alexander Szimayer (Hamburg)
MSC:
| 91G20 | Derivative securities (option pricing, hedging, etc.) |
| 91G60 | Numerical methods (including Monte Carlo methods) |
| 60J60 | Diffusion processes |
Software:
minpackReferences:
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